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INX Interim / Quarterly Report 2016

Dec 16, 2016

52330_rns_2016-12-16_0830d4e8-d804-4bb9-8c87-621bdb97257c.pdf

Interim / Quarterly Report

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INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REVIEW REPORT OF INDEPENDENT

ACCOUNTANTS

SEPTEMBER 30, 2016 AND 2015

REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Innolux Corporation:

We have reviewed the accompanying consolidated balance sheets of Innolux Corporation and subsidiaries as of September 30, 2016 and 2015, and the related consolidated statements of comprehensive income for the three-month and nine-month periods ended September 30, 2016 and 2015, and the consolidated statements of changes in equity and of cash flows for the nine-month periods ended September 30, 2016 and 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express a conclusion on these financial statements based on our reviews.

We conducted our reviews in accordance with the Statement on Auditing Standards No. 36, “Review of Financial Statements” in the Republic of China. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications or adjustments that should be made to the consolidated financial statements referred to above for them to be in conformity with the “Regulations Governing the Preparation of the Financial Reports by Securities Issuers” and IAS 34, “Interim Financial Reporting” as endorsed by the Financial Supervisory Commission.

PricewaterhouseCoopers, Taiwan

October 28, 2016

------------------------------------------------------------------------------------------------------------------------------------------------The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

~1~

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2016, DECEMBER 31, 2015 AND SEPTEMBER 30, 2015

(Expressed in thousands of New Taiwan dollars)

(The consolidated balance sheets as of September 30, 2016 and 2015 are reviewed, not audited)

Assets Notes September 30, 2016
$ 32,585,966
354,487
-
39,100,561
4,989,639
3,573,806
24,339,134
2,002,205
11,423
156,398
107,113,619
260,708
5,598,029
1,528,181
202,438,870
576,106
18,642,727
16,245,019
752
2,506,532
247,796,924
$ 354,910,543
(Continued)		 December 31, 2015
$ 52,522,790
120,036
-
48,189,791
2,632,853
2,024,204
30,198,432
1,107,869
1,979,467
91,545
138,866,987
281,922
7,123,034
1,610,586
199,482,740
680,503
19,342,856
15,888,467
119,703
4,045,538
248,575,349
$ 387,442,336		 September 30, 2015
Current Assets
1100
Cash and cash equivalents
1110
Financial assets at fair
value through profit or
loss - current
1125
Available-for-sale
financial assets - current
1170
Accounts receivable, net
1180
Accounts receivable, net -
related parties
1200
Other receivables
130X
Inventory
1410
Prepayments
1476
Other financial assets -
current
1479
Other current assets
11XX
Total current assets
Non-current assets
1510
Financial assets at fair
value through profit or
loss - non-current
1523
Available-for-sale
financial assets - non-
current
1550
Investments accounted for
under equity method
1600
Property, plant and
equipment
1760
Investment property, net
1780
Intangible assets
1840
Deferred income tax assets
1980
Other financial assets -
non-current
1990
Other non-current assets
15XX
Total non-current
assets
1XXX
Total assets		 6(1)
6(2)
6(3)
6(5)(6)
7
6(6) and 7
6(7)
6(13)
6(1) and 8
6(2)
6(3)
6(8)
6(9), 7 and
8
6(10)
6(11)
8
6(9)		 $ 45,232,082
221,468
220,000
55,543,748
3,693,608
2,274,095
35,007,811
1,332,224
1,067,972
117,475
144,710,483
249,543
7,741,927
1,527,102
204,010,807
683,797
19,507,985
15,285,893
199,703
2,149,271
251,356,028
$ 396,066,511

~2~

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2016, DECEMBER 31, 2015 AND SEPTEMBER 30, 2015

(Expressed in thousands of New Taiwan dollars) (The consolidated balance sheets as of September 30, 2016 and 2015 are reviewed, not audited)

Liabilities and Equity Notes September 30, 2016 December 31, 2015 September 30, 2015
Current Liabilities
2100 Short-term borrowings 6(12) $ 15,985,949 $ - $ -
2120 Financial liabilities at fair 6(2)
value through profit or
loss - current 275,457 265,525 115,599
2170 Accounts payable 48,851,691 57,069,951 60,143,256
2180 Accounts payable - related 7
parties 2,663,176 3,359,933 2,974,737
2200 Other payables 7 and 9 20,798,253 24,912,360 23,128,829
2230 Current income tax
liabilities 1,513,017 1,819,368 1,479,244
2250 Provisions - current 6(16) and 9 2,652,177 5,551,759 3,549,052
2320 Long-term liabilities, 6(13)
current portion 16,369,190 16,361,238 16,352,150
2399 Other current liabilities 1,865,566 1,131,329 2,711,812
21XX Total current liabilities 110,974,476 110,471,463 110,454,679
Non-current liabilities
2540 Long-term borrowings 6(13) 27,281,983 43,629,968 43,605,733
2570 Deferred income tax
liabilities 752,247 514,094 537,053
2600 Other non-current
liabilities 556,893 562,088 343,911
25XX Total non-current
liabilities 28,591,123 44,706,150 44,486,697
2XXX Total liabilities 139,565,599 155,177,613 154,941,376
Equity attributable to
owners of the parent
3110 Share capital - common 6(17)
stock 99,522,104 99,532,372 99,535,828
3200 Capital surplus 6(18) 99,647,346 99,643,564 99,629,609
Retained earnings 6(19)
3310 Legal reserve 3,758,507 2,676,947 2,676,948
3350 Unappropriated retained
earnings 15,591,363 27,661,503 34,547,325
3400 Other equity interest 6(20) ( 3,174,376) 2,750,337 4,735,425
31XX Equity attributable to
owners of the parent 215,344,944 232,264,723 241,125,135
36XX Non-controlling interest - - -
3XXX Total equity 215,344,944 232,264,723 241,125,135
Significant contingent 9
liabilities and unrecognized
contract commitments
Significant disaster loss 10
3X2X Total liabilities and
equity $ 354,910,543 $ 387,442,336 $ 396,066,511

The accompanying notes are an integral part of these consolidated financial statements.

~3~

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except for earnings (loss) per share amounts)

(Reviewed, not audited)

Three months ended September 30 Three months ended September 30 Nine months ended September 30 Nine months ended September 30
Items Notes 2016 2015 2016 2015
4000 Sales revenue 7 $ 74,484,602 $ 88,756,324 $ 197,706,910 $ 282,669,377
5000 Operating costs 6(7)(24) and 7 ( 65,715,562) ( 77,983,670) ( 191,420,305) ( 238,556,083)
5900 Net operating margin 8,769,040 10,772,654 6,286,605 44,113,294
Operating expenses 6(24)
6100 Selling expenses ( 523,514) ( 803,631) ( 1,747,965) ( 2,457,591)
6200 General and administrative expenses ( 1,539,999) ( 1,594,730) ( 4,626,643) ( 5,063,871)
6300 Research and development expenses ( 2,847,409) ( 3,668,646) ( 7,494,096) ( 11,263,155)
6000 Total operating expenses ( 4,910,922) ( 6,067,007) ( 13,868,704) ( 18,784,617)
6900 Operating profit (loss) 3,858,118 4,705,647 ( 7,582,099) 25,328,677
Non-operating income and expenses
7010 Other income 6(21) 440,372 524,304 2,639,534 1,605,888
7020 Other gains and losses 6(22) ( 676,884) ( 789,427) ( 2,376,213) ( 4,487,333)
7050 Finance costs 6(23) ( 166,618) ( 373,577) ( 765,179) ( 1,087,147)
7060 Share of profit/(loss) of associates and joint ventures accounted
for under equity method 80,266 14,644 215,524 124,691
7000 Total non-operating income and expenses ( 322,864) ( 624,056) ( 286,334) ( 3,843,901)
7900 Profit (loss) before income tax 3,535,254 4,081,591 ( 7,868,433) 21,484,776
7950 Income tax expense 6(26) ( 476,988) ( 599,667) ( 1,130,337) ( 3,947,442)
8200 Profit (loss) for the period $ 3,058,266 $ 3,481,924 ( $ 8,998,770) $ 17,537,334
Components of other comprehensive (loss) income that will be
reclassified to profit or loss
8361 Financial statements translation differences of foreign operations ( $ 2,483,243) $ 1,948,008 ( $ 4,652,473) ( $ 14,760)
8362 Unrealized gain (loss) on valuation of available-for-sale financial
assets 96,941 ( 499,438) ( 1,214,400) 2,884,500
8363 Cash flow hedges 6(4) - - - ( 297,675)
8370 Share of other comprehensive (loss) income of associates and
joint ventures accounted for under equity method ( 28,844) 46,540 ( 44,984) 9,844
8399 Income tax relating to the components of other comprehensive 6(26)
income 14,448 39,098 ( 30,743) 100,816
8300 Other comprehensive (loss) income for the period, net of tax ( $ 2,400,698) $ 1,534,208 ( $ 5,942,600) $ 2,682,725
8500 Total comprehensive income (loss) for the period $ 657,568 $ 5,016,132 ( $ 14,941,370) $ 20,220,059
Profit (loss) attributable to:
8610 Owners of the parent $ 3,058,266 $ 3,481,886 ( $ 8,998,770) $ 17,538,787
8620 Non-controlling interest - 38 - ( 1,453)
Total $ 3,058,266 $ 3,481,924 ( $ 8,998,770) $ 17,537,334
Other comprehensive income (loss) attributable to:
8710 Owners of the parent $ 657,568 $ 5,016,324 ( $ 14,941,370) $ 20,251,254
8720 Non-controlling interest - ( 192) - ( 31,195)
Total $ 657,568 $ 5,016,132 ( $ 14,941,370) $ 20,220,059
Earnings (loss) per share (in dollars) 6(27)
9750 Basic earnings (loss) per share $ 0.31 $ 0.35 ( $ 0.90) $ 1.77
9850 Diluted earnings (loss) per share $ 0.31 $ 0.35 ( $ 0.90) $ 1.73

The accompanying notes are an integral part of these consolidated financial statements.

~4~

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars)

(Reviewed, not audited)

2015
Balance at January 1
Appropriations of 2014
earnings:
Legal reserve
Special reserve
Cash dividends
Cancellation of restricted
stock to employees
Changes in restricted stock to
employees
Compensation related to
share-based payment
Changes in net equity of long-
term equity investments
Changes in non-controlling
interests
Profit for the period
Other comprehensive income
for the period
Balance at September 30
2016
Balance at January 1
Appropriations of
2015
earnings:
Legal reserve
Cash dividends
Cancellation of restricted
stock to employees
Changes in restricted stock to
employees
Compensation related to
share-based payment
Changes in net equity of long-
term equity investments
Loss for the period
Other comprehensive loss for
the period
Balance at September 30		 Notes Equityattributable to o Equityattributable to o w ners of theparent ners of theparent ners of theparent Non-
controlling
interest		 Total
Common stock Capital surplus Retained Earnings Other equityinterest Total
Legal reserve Special
reserve		 Unappropriated
earnings		 Financial
statements
translation
differences of
foreign
operations		 Unrealized
gain (loss) on
available-for-
sale financial
assets		 Changes in
gain (loss)
on cash
flow hedge		 Employee
unearned
compensation
6(19)
6(15)
6(20)
6(19)
6(15)
6(20)		 $ 99,545,364
-
-
-
(
9,536 )
-
-
-
-
-
-
$ 99,535,828
$ 99,532,372
-
-
(
10,268 )
-
-
-
-
-
$ 99,522,104		 $ 99,584,369
-
-
-
9,536
(
2,883 )
11,364
27,185
38
-
-
$ 99,629,609
$ 99,643,564
-
-
10,268
(
3,916 )
-
(
2,570 )
-
-
$ 99,647,346		 $ 509,272
2,167,676
-
-
-
-
-
-
-
-
-
$2,676,948
$ 2,676,947
1,081,560
-
-
-
-
-
-
-
$ 3,758,507		 $ 1,144,229
-
( 1,144,229 )
-
-
-
-
-
-
-
-
$ -
$ -
-
-
-
-
-
-
-
-
$ -		 $ 24,979,173
(
2,167,676 )
1,144,229
(
6,947,188 )
-
-
-
-
-
17,538,787
-
$ 34,547,325
$ 27,661,503
(
1,081,560 )
(
1,989,810 )
-
-
-
-
(
8,998,770 )
-
$ 15,591,363		 $ 3,082,948
-
-
-
-
-
-
-
-
-
24,826
$ 3,107,774
$ 1,695,294
-
-
-
-
-
-
-
( 4,697,457 )
($ 3,002,163 )		 ($ 1,259,847 )
-
-
-
-
-
-
-
-
-
2,934,711
$1,674,864
$ 1,074,445
-
-
-
-
-
-
-
( 1,245,143 )
($ 170,698 )		 $ 247,070
-
-
-
-
-
-
-
-
-
( 247,070 )
$ -
$ -
-
-
-
-
-
-
-
-
$ -		 ($ 142,515 )
-
-
-
-
2,411
92,891
-
-
-
-
($ 47,213 )
($ 19,402 )
-
-
-
3,977
13,910
-
-
-
($ 1,515 )		 $ 227,690,063
-
-
(
6,947,188 )
-
(
472 )
104,255
27,185
38
17,538,787
2,712,467
$ 241,125,135
$ 232,264,723
-
(
1,989,810 )
-
61
13,910
(
2,570 )
(
8,998,770 )
(
5,942,600 )
$ 215,344,944		 $ 1,481,373
-
-
-
-
-
-
-
( 1,450,178 )
(
1,453 )
(
29,742 )
$ -
$ -
-
-
-
-
-
-
-
-
$ -		 $ 229,171,436
-
-
(
6,947,188 )
-
(
472 )
104,255
27,185
(
1,450,140 )
17,537,334
2,682,725
$ 241,125,135
$ 232,264,723
-
(
1,989,810 )
-
61
13,910
(
2,570 )
(
8,998,770 )
(
5,942,600 )
$ 215,344,944

The accompanying notes are an integral part of these consolidated financial statements.

~5~

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars)

(Reviewed, not audited)

CASH FLOWS FROM OPERATING ACTIVITIES
(Loss) profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation and amortization
Compensation related to share-based payment
Share of loss of associates and joint ventures accounted
for under equity method
Loss (gain) from disposal of investments
Loss on disposal of property, plant and equipment
Impairment loss
Interest expense
Interest income
Dividend income
Unrealized foreign exchange loss (gain)
Changes in operating assets and liabilities
Changes in operating assets
Financial assets /liabilities at fair value through profit
or loss
Accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Prepayments
Other current assets
Changes in operating liabilities
Derivative financial liabilities for hedging
Accounts payable
Accounts payable - related parties
Other payables
Provisions - current
Other current liabilities
Other non-current liabilities
Cash inflow generated from operations
Cash paid for income tax
Net cash flows from operating activities		 Notes
2016
2015
($ 7,868,433 )
$ 21,484,776
6(24)
31,749,232
41,033,995
6(24)
13,910
104,255
(
215,524 ) (
124,691 )
6(22)
70,990
(
91,879 )
6(22)
80,021
176,565
6(22)
-
589,634
6(23)
749,794
1,384,817
6(21)
(
212,458 ) (
359,230 )
6(21)
(
177,880 ) (
223,677 )
37,319
(
224,625 )
(
203,305 ) (
302,820 )
9,089,230
15,432,257
(
2,356,786 )
2,418,792
102,483
601,050
4,926,909
(
898,552 )
(
717,038 )
109,379
(
64,853 )
31,594
-
(
299,026 )
(
8,218,260 ) (
14,811,183 )
(
696,757 ) (
2,278,209 )
(
4,867,898 ) (
1,111,186 )
(
2,899,582 )
415,563
734,237
718,541
(
5,195) (
15,347)
19,050,156
63,760,793
(
1,585,830) (
397,544)
17,464,326
63,363,249

(Continued)

~6~

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars)

(Reviewed, not audited)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of available-for-sale financial
assets
Decrease in other financial assets
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
Proceeds from disposal of intangible assets
Decrease (increase) in other non-current assets
Interest received
Dividends received
Proceeds from capital reduction of investments accounted
for under equity method
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in prepayments
Increase (decrease) in short-term borrowings
Increase in long-term borrowings
Payment of long-term borrowings
Repurchase from issuance of restricted stock to employees
Changes in non-controlling interests
Interest paid
Cash dividends paid
Net cash flows used in financing activities
Effect of changes in foreign currency exchange
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period		 Notes
2016
2015
$ 222,372
$ 228,796
2,086,995
1,615,157
6(28)
(
34,902,350 ) (
14,648,753 )
18,982
1,796,822
(
6,389 ) (
226,086 )
-
560
10,550
(
6,256 )
254,348
333,674
404,576
246,848
23,680
-
(
31,887,236 ) (
10,659,238 )
6(13)
(
177,298 )
-
15,948,630
(
22,449,868 )
-
68,100,131
(
16,440,000 ) (
116,527,861 )
(
1,248 ) (
2,382 )
-
(
50 )
(
657,044 ) (
1,364,495 )
6(19)
(
1,989,810 ) (
6,947,188 )
(
3,316,770 ) (
79,191,713 )
(
2,197,144 )
730,043
(
19,936,824 ) (
25,757,659 )
52,522,790
70,989,741
$ 32,585,966
$ 45,232,082

The accompanying notes are an integral part of these consolidated financial statements.

~7~

INNOLUX CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

(Reviewed, not audited)

1. HISTORY AND ORGANIZATION

  • (1)Innolux Corporation (the “Company”) was organized on January 14, 2003 under the Act for Establishment and Administration of Science Parks in Republic of China (R.O.C.). The Company was listed on the Taiwan Stock Exchange Corporation (the “TSEC”) in October 2006. The Company merged with TPO Displays Corporation and Chi Mei Optoelectronics Corporation on March 18, 2010, with the Company as the surviving entity.

  • (2)The Company and its subsidiaries (the “Group”) engage in the research, development, design, manufacture and sales of TFT-LCD panels, modules and monitors of LCD, color filter, and low temperature poly-silicon TFT-LCD.

2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL

STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were authorized for issuance by the Board of Directors on October 28, 2016.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

  • (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”) None.

  • (2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by

the Group

New standards, interpretations and amendments endorsed by IFRSs effective from 2017 are as follows:

follows:
New Standards,Interpretations and Amendments Effective Date by
International Accounting
Standards Board
Investment entities: applying the consolidation exception (amendments
to IFRS 10, IFRS 12 and IAS 28)
Accounting for acquisition of interests in joint operations (amendments
to IFRS 11)
IFRS 14, ‘Regulatory deferral accounts’
Disclosure initiative (amendments to IAS 1)
Clarification of acceptable methods of depreciation and amortisation
(amendments to IAS 16 and IAS 38)
Agriculture: bearer plants (amendments to IAS 16 and IAS 41)
Defined benefit plans: employee contributions (amendments to IAS 19R)		 January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
July 1, 2014

~8~

New Standards,Interpretations and Amendments Effective Date by
International Accounting
Standards Board
Equity method in separate financial statements (amendments to IAS 27)
Recoverable amount disclosures for non-financial assets (amendments to
IAS 36)
Novation of derivatives and continuation of hedge accounting
(amendments to IAS 39)
IFRIC 21, ‘Levies’
Improvements to IFRSs 2010-2012
Improvements to IFRSs 2011-2013
Improvements to IFRSs 2012-2014		 January 1, 2016
January 1, 2014
January 1, 2014
January 1, 2014
July 1, 2014
July 1, 2014
January 1, 2016

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and operating results based on the Group’s assessment. Annual improvements to IFRSs 2010-2012 cycle

IFRS 8, ‘Operating segments’

The standard is amended to require disclosure of judgments made by management in aggregating operating segments. This amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets is required only when segment asset is provided to chief operating decision maker regularly.

Except for the above impact, the Group is assessing the potential impact of amendments to other standards and interpretations on financial position and performance. The impact will be disclosed when the assessment is complete.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs endorsed by the FSC effective from 2017 are as follows:

New Standards,Interpretations and Amendments Effective Date by
International Accounting
Standards Board
Classification and measurement of share-based payment transactions
(amendments to IFRS 2)
IFRS 9, ‘Financial instruments’
Sale or contribution of assets between an investor and its associate or
joint venture (amendments to IFRS 10 and IAS 28)
IFRS 15, ‘Revenue from contracts with customers’
Clarifications to IFRS 15, ‘Revenue from contracts with customers’
(amendments to IFRS 15)
IFRS 16, ‘Leases’		 January 1, 2018
January 1, 2018
To be determined by
International Accounting
Standards Board
January 1, 2018
January 1, 2018
January 1, 2019

~9~

Effective Date by International Accounting New Standards, Interpretations and Amendments Standards Board Disclosure initiative (amendments to IAS 7) January 1, 2017 Recognition of deferred tax assets for unrealised losses (amendments to January 1, 2017 IAS 12)

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and operating results based on the Group’s assessment. A. IFRS 9, ‘Financial instruments’

  • (a) Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to recognize the equity instrument not held for trading at fair value in other comprehensive income.

  • (b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognise 12-month expected credit losses (‘ECL’) or lifetime ECL (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance).

  • (c) The amended general hedge accounting makes the accounting practices consistent with an entity’s risk management strategy. The components and the grouping of non-financial items can be loosened as hedged items. The 80~125% threshold of highly efficient hedge is removed, and the hedge items and the hedged percentages of the hedge instruments that can be rebalanced under the unchanged business objectives of risk management are increased.

  • B. IFRS 15, ‘Revenue from contracts with customers’

  • IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 11, ‘Construction Contracts’, IAS 18, ‘Revenue’, and relevant interpretations and SICs. According to IFRS 15, revenue is recognised when a customer obtains control of goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

  • The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps:

~10~

Step 1: Identify contracts with customer

  • Step 2: Identify performance obligations in the contract(s)

  • Step 3: Determine the transaction price

  • Step 4: Allocate the transaction price to the performance obligations in the contract(s) Step 5: Recognise revenue when the performance obligation is satisfied. Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

  • C. Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from Contracts with Customers’ The amendments clarify how to identify a performance obligation (the promise to transfer goods or services to a customer) in a contract; determine whether a company is a principal (the provider of goods or services) or an agent (responsible for arranging for the goods or services to be provided); and determine whether the revenue from granting a license should be recognised at a point in time or a period of time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard.

  • D. Amendments to IAS 7, ‘Disclosure initiative’

  • This amendment requires that an entity shall provide more disclosures related to changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

  • E. IFRS 16, ‘Leases’

  • IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a ‘right-of-use asset’ and a lease liability (except for those leases with terms of less than 12 months and leases of low-value assets). Lessor accounting still uses the dual classification approach: operating leases and finance leases, and only increases the related disclosures.

Except for the above impact, the Group is assessing the potential impact of amendments to other standards and interpretations on financial position and performance. The impact will be disclosed when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the compliance statement, basis of preparation, basis of consolidation and additional descriptions that are set out below, the rest of the principal accounting policies applied in the preparation of these consolidated financial statements are the same as those disclosed in Note 4 to the consolidated financial statements as of and for the year ended December 31, 2015. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

  • A. The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Accounting Standard 34, “Interim financial reporting” as endorsed by the FSC.

~11~

  • B. These financial statements should be read with the consolidated financial statements for the year ended December 31, 2015.

(2) Basis of preparation

  • A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:

  • (a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

  • (b) Available-for-sale financial assets measured at fair value.

  • (c) Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligations.

  • B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

(3) Basis of consolidation

  • A. Basis for preparation of consolidated financial statements

  • The basis applied in these consolidated financial statements is consistent with that applied in the consolidated financial statements for the year ended December 31, 2015.

  • B. Subsidiaries included in the consolidated financial statements:

Main
Business
Name of Investor
Name of Subsidiary
Activities
Innolux Corporation
Bright Information
Holding Ltd.
Investment
holdings
Gold Union Investments
Ltd.
Investment
holdings
Golden Achiever
International Ltd.
Investment
holdings
Innolux Holding Ltd.
Investment
holdings
Keyway Investment
Management Limited
Investment
holdings
Landmark International
Ltd.
Investment
holdings
Toppoly Optoelectronics
(B.V.I.) Ltd.
Investment
holdings
Innolux Hong Kong
Holding Limited
Investment
holdings
Leadtek Global Group
Limited
Order swapping
company		 September December 31, September
30,2016
2015
30,2015
Description
100
100
100
-
-
-
100
(a)
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
Ownership (%)

~12~

~13~
Main
Business
Name of Investor
Name of Subsidiary
Activities
Innolux Corporation
Yuan Chi Investment Co.,
Ltd.
Investment
company
InnoJoy Investment
Corporation
Investment
company
Innolux Optoelectronics
Europe B.V.
Investment and
distribution
company
Innolux Optoelectronics
Japan Co., Ltd.
Investment and
distribution
company
Bright Information
Holding Ltd.
Kunpal Optoelectronics
Ltd.
Processing
company
Golden Achiever
International Ltd.
VAP Optoelectronics
(Nanjing) Corp.
Processing
company
Innolux Holding Ltd. Rockets Holding Ltd.
Investment
holdings
Suns Holding Ltd.
Investment
holdings
Lakers Trading Ltd.
Order swapping
company
Innolux Corporation
Distribution
company
Ningbo Innolux Logistics
Ltd.
Warehousing
company
Foshan Innolux Logistics
Ltd.
Warehousing
company
Landmark
International Ltd.
Ningbo Innolux
Optoelectronics Ltd.
Processing
company
Ningbo Innolux
Technology Ltd.
Processing
company
Foshan Innolux
Optoelectronics Ltd.
Processing
company
Ningbo Innolux Display
Ltd.
Processing
company
Toppoly
Optoelectronics
(B.V.I.) Ltd.
Toppoly Optoelectronics
(Cayman) Ltd.
Investment
holdings
Innolux Hong Kong
Holding Limited
Innolux Optoelectronics
Hong Kong Holding Ltd.
Investment
holdings
Innolux Hong Kong Ltd.
Order swapping
company
Innolux Technology
Europe B.V.
Investment and
R&D company
Innolux Technology
Japan Co., Ltd.
R&D company
Innolux Technology USA
Inc.
Distribution
company
Innolux
Optoelectronics
Europe B.V.
Innolux Optoelectronics
Germany GmbH
After sales
service
company
Keyway Investment
Management Limited		 September December 31, September
30,2016
2015
30,2015
Description
100
100
100
-
100
100
100
-
100
100
100
100
100
100
-
-
100
100
(c)
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
Ownership (%)
Main
Business
Name of Investor
Name of Subsidiary
Activities
Innolux
Optoelectronics
Japan Co., Ltd.
Innolux Optoelectronics
USA, Inc.
Distribution
company
Rockets Holding Ltd. Best China Investments
Ltd.
Investment
holdings
Mega Chance Investments
Ltd.
Investment
holdings
Magic Sun Ltd.
Investment
holdings
Stanford Developments
Ltd.
Investment
holdings
Nets Trading Ltd.
Investment
company
Suns Holding Ltd.
Warriors Technology
Investments Ltd.
Investment
company
Toppoly
Optoelectronics
Nanjing Innolux
Technology Ltd.
Distribution
company
(Cayman) Ltd.
Nanjing Innolux
Optoelectronics Ltd.
Processing
company
Kunpal Optoelectronics
Ltd.
Processing
company
Innolux
Optoelectronics Hong
Kong Holding Ltd.
Shanghai Innolux
Optoelectronics Ltd.
Processing
company
Innolux Technology
Europe B.V.
Innolux Technology
Germany GmbH
Testing and
maintenance
company
Best China
Investments Ltd.
Asiaward Investment Ltd. Investment
holdings
Mega Chance
Investments Ltd.
Main Dynasty Investment
Ltd.
Investment
holdings
Magic Sun Ltd.
Sun Dynasty
Development Ltd.
Investment
holdings
Stanford
Developments
Ltd.
Innocom Technology
(Shenzhen) Co., Ltd.
Processing
company
Ningbo Innolux
Display Ltd.
Ningbo Innolux
Electronics Ltd.
Distribution
company		 September December 31, September
30,2016
2015
30,2015
Description
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
-
-
(c)
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
-
(b)
Ownership (%)

  • (a) Gold Union Investments Ltd. ceased operations and was liquidated in the fourth quarter of 2015.

  • (b) Ningbo Innolux Electronics Ltd. was established in November 2015 and was included in the consolidated financial statements since the date of establishment.

  • (c) Kunpal Optoelectronics Ltd. was previously a wholly-owned subsidiary of Bright Information Holding Ltd.. However, after reorganization in July 2016, Kunpal Optoelectronics Ltd. became a wholly-owned subsidiary of Toppoly Optoelectronics (Cayman) Ltd.

~14~

  • C. Subsidiaries not included in the consolidated financial statements: None.

  • D. Adjustments for subsidiaries with different balance sheet dates: None.

  • E. The restrictions on fund remittance from subsidiaries to the parent company: None.

  • F. Subsidiaries that have non-controlling interests that are material to the Group: None.

(4) Derecognition of financial assets

The Group derecognizes a financial asset when one of the following conditions is met:

  • A. The contractual rights to receive cash flows from the financial asset expire.

  • B. The contractual rights to receive cash flows from the financial asset have been transferred and the Group has transferred substantially almost all risks and rewards of ownership of the financial asset.

  • C. The contractual rights to receive cash flows of the financial asset have been transferred and the Group has not retained control of the financial asset.

(5) Employee benefits

Except for the following additional accounting policies, the accounting policies on employee benefits are the same as those described in Note 4 of the 2015 consolidated financial statements.

Pension cost for the interim period is calculated on a year-to-date basis by using the pension cost rate derived from the actuarial valuation at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events. Also, the related information is disclosed accordingly.

  • (6) Income tax

Except for the following additional accounting policies, the accounting policies on income tax are the same as those described in Note 4 of the 2015 consolidated financial statements. The interim period income tax expense is calculated according to pretax income times effective income tax rate, and the related information is disclosed accordingly.

5. CRITICALACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION

UNCERTAINTY

For more information, please refer to Note 5 of the consolidated financial statements for the year ended December 31, 2015.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

Cash and cash equivalents
Cash on hand and revolving funds
Checking accounts and demand
deposits
Time deposits
Cash equivalents - Repurchase
bonds		 September30,2016
1,501
$ 24,038,245
7,881,412
31,921,158
664,808
32,585,966
$		 December31,2015
2,255
$ 28,526,258
23,331,155
51,859,668
663,122
52,522,790
$		 September30,2015
2,651
$ 25,374,551
19,192,590
44,569,792
662,290
45,232,082
$

~15~

  • A. The Group associates with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

  • B. The above time deposits and bonds with repurchase agreement expire in 3 months and risks of changes in their values are remote. The remaining unpledged time deposits which did not meet the definition of cash equivalents were $5,048, $1,973,263 and $583,894 at September 30, 2016, December 31, 2015 and September 30, 2015, respectively, and were classfied as ‘other financial assets - current’.

(2) Financial assets and liabilities at fair value through profit or loss

September 30, 2016 December 31, 2015 September 30, 2015

September30,2016 December31,2015 September30,2015
Assets
Current items
Financial assets held for trading
Forward foreign exchange
contracts
Non-current items
Financial assets held for trading
Stock-Advanced
Optoelectronic Technology
Inc.
Valuation adjustment
Liabilities
Current items
Financial liabilities held for
trading
Forward foreign exchange
contracts		 354,487
$ 77,019
$ 183,689
260,708
$ 275,457
$		 120,036
$ 77,019
$ 204,903
281,922
$ 265,525
$		 221,468
$
77,019
$ 172,524
249,543
$
115,599
$
  • A. The Group recognized net (loss) gain of ($120,870), ($351,215), $1,026,300 and ($529,752) on the financial instruments for the three-month and nine-month periods ended September 30, 2016 and 2015, respectively.

~16~

B. The non-hedging derivative financial assets and liabilities transaction information are as follows:

The Group entered into forward foreign exchange contracts to hedge exchange rate risk of import and
export proceeds in foreign currency. However, these forward foreign exchange contracts are not
accounted for under hedge accounting.
Derivative financial
assets and liabilities
Contract Period
Contract Period
Current items
Forward foreign
TWD (sell)
28,458,208
$ 2016/6-2017/3
USD (sell)
150,000
$ 2015/10-2016/2
exchange contracts
USD (buy)
905,000
2016/6-2017/3
TWD (buy)
4,896,705
2015/10-2016/2
Forward foreign
USD (sell)
390,000
2016/7-2016/12 USD (sell)
295,000
2015/10-2016/3
exchange contracts
JPY (buy)
39,812,858
2016/7-2016/12 JPY (buy)
35,649,520
2015/10-2016/3
Forward foreign
EUR (sell)
12,000
2016/8-2016/12 EUR (sell)
5,000
2015/11-2016/1
exchange contracts
USD (buy)
13,568
2016/8-2016/12 TWD (buy)
175,075
2015/11-2016/1
Forward foreign
EUR (sell)
66,000
2016/6-2017/1
EUR (sell)
80,500
2015/10-2016/3
exchange contracts
JPY (buy)
7,561,997
2016/6-2017/1
JPY (buy)
10,668,495
2015/10-2016/3
Forward foreign
HKD (sell)
333,353
2016/7-2016/10 HKD (sell)
321,477
2015/11-2016/1
exchange contracts
EUR (buy)
39,000
2016/7-2016/10 EUR (buy)
39,000
2015/11-2016/1
Forward foreign
USD (sell)
890,000
2016/7-2017/1
USD (sell)
240,000
2015/10-2016/2
exchange contracts
RMB (buy)
5,962,493
2016/7-2017/1
RMB (buy)
1,541,675
2015/10-2016/2
Forward foreign
RMB (sell)
502,737
2016/9-2016/10
exchange contracts
USD (buy)
75,260
2016/9-2016/10
(in thousands)
(in thousands)
September 30,2016
December 31,2015
Contract Amount
Contract Amount
(Notional Principal)
(Notional Principal)
Derivative financial
assets and liabilities
Contract Period
Current items
Forward foreign
USD (sell)
255,000
$ 2015/8-2015/12
exchange contracts
TWD (buy)
8,409,445
2015/8-2015/12
Forward foreign
USD (sell)
334,000
2015/6-2015/12
exchange contracts
JPY (buy)
40,623,872
2015/6-2015/12
Forward foreign
EUR (sell)
2,000
2015/7-2015/10
exchange contracts
USD (buy)
2,180
2015/7-2015/10
Forward foreign
EUR (sell)
35,700
2015/7-2015/12
exchange contracts
TWD (buy)
1,288,201
2015/7-2015/12
Forward foreign
EUR (sell)
43,000
2015/7-2015/12
exchange contracts
JPY (buy)
5,852,689
2015/7-2015/12
Forward foreign
JPY (sell)
2,400,000
2015/9-2015/10
exchange contracts
TWD (buy)
654,000
2015/9-2015/10
Forward foreign
TWD (sell)
654,000
2015/9-2015/10
exchange contracts
JPY (buy)
2,380,779
2015/9-2015/10
Forward foreign
USD (sell)
44,214
2015/8-2015/11
exchange contracts
EUR (buy)
39,000
2015/8-2015/11
Forward foreign
HKD (sell)
342,793
2015/8-2015/11
exchange contracts
USD (buy)
44,214
2015/8-2015/11
Forward foreign
USD (sell)
60,000
2015/7-2015/12
exchange contracts
RMB (buy)
378,646
2015/7-2015/12
(in thousands)
September 30,2015
Contract Amount
(Notional Principal)		 September 30,2016 December 31,2015 December 31,2015
(in thousands)
Contract Amount
(Notional Principal)		 Contract Period





(in thousands)
Contract Amount
(Notional Principal)

~17~

(3) Available-for-sale financial assets

Available-for-sale financial assets
Items
Current items
Bond investments
Non-current items
Listed stocks and bond
investments
Emerging and unlisted stocks		 September30,2016
-
$ 4,936,453
$ 661,576
5,598,029
$		 December31,2015
-
$ 6,403,449
$ 719,585
7,123,034
$		 September30,2015
220,000
$
6,997,931
$ 743,996
7,741,927
$

  • A. The Group recognised net gain (loss) in other comprehensive income for fair value change and reclassified from equity to profit or loss for the three-month and nine-month periods ended September 30, 2016 and 2015. Please refer to Note 6(20).

  • B. For the nine months ended September 30, 2015, the Company and its subsidiary assessed that investment value of certain investee companies was impaired and recognized impairment loss of $108,000 which was listed as ‘other gains and losses’.

  • C. The counterparties of the Group’s debt instrument investments have good credit quality.

(4) Hedging derivative financial liabilities

  • A. The Company was exposed to significant risk of future cash flow changes on principal payments associated with the Company’s floating interest rate bearing borrowings, both current and longterm portion. Therefore, the Company entered into interest rate swap contracts for exchanging floating interest rate for fixed interest rate (TWD90/180CP (Page51328) to hedge such exposures. The contract had matured and was settled in February 2015.

  • B. Information about gain or loss arising from cash flow hedges recognized in profit or loss and other comprehensive income:

comprehensive income:
For the three-month period For the nine-month period
Items endedSeptember 30,2015 endedSeptember 30,2015
Amount of gain or loss adjusted in $ - $ 5
other comprehensive income
Amount of gain or loss transferred
from other comprehensive income
to profit or loss - 297,670
Accounts receivable
September30,2016 December 31,2015 September30,2015
Accounts receivable $ 39,945,649 $ 48,944,637 $ 56,175,372
Less: Allowance for sales returns
and discounts ( 727,444) ( 636,330) ( 513,106)
Allowance for bad debts ( 117,644) ( 118,516) ( 118,518)
$ 39,100,561 $ 48,189,791 $ 55,543,748

(5) Accounts receivable

~18~

  • A. The Group’s accounts receivable that were neither past due nor impaired meet the credit ranking rule based on the counterparties’ industrial characteristics scale of business and profitability.

  • B. The aging analysis of accounts receivable and notes receivable that were past due but not impaired is as follows:

is as follows:
Up to 60 days
61 to 180 days
Over 181 days		 September30,2016

760,379
$ 3,082
2,501
765,962
$		 December31,2015
644,656
$ 42,281
15,766
702,703
$		 September30,2015
$ 1,304,314
36,821
25,354
1,366,489
$

  • C. Movement analysis of accounts receivable and notes receivable that were impaired is as follows:

  • (a) As of September 30, 2016, December 31, 2015 and September 30, 2015, the Group’s accounts receivable that were impaired were $117,644, $118,516 and $118,518, respectively.

  • (b) Movement on allowance for bad debts for impairment loss on individual provision is as follows:

2016 2015
At January 1 $ 118,516 $ 139,867
Allowance for bad debts - write-offs ( 850) ( 21,447)
Net exchange difference ( 22) 38
Allowance for bad debts - reclassifications - 60
At September 30 $ 117,644 $ 118,518

(6) Transfer of financial assets

Under the agreement, the Company is not obligated to bear the default risk of the transferred accounts receivable since the Company has no right of recourse to the transferred accounts receivable, but is liable for the losses incurred on any business dispute. The Company does not provide any collateral and does not have any continuing involvement in the transferred accounts receivable. Thus, the Company derecognised the transferred accounts receivable. For the nine-month period ended September 30, 2015, the Company has no related transactions. As of September 30, 2016, the related information on accounts receivable that were transferred but not expired is as follows. Partial amounts that were not advanced are recorded in other receivables:

September 30, 2016

Purchaser
of accounts
receivable
CTBC Bank
Taipei Fubon
Commercial Bank		 Accounts
receivable
transferred but
not expired
2,451,201
$ 343,243
2,794,444
$		 Amount
derecognised
2,451,201
$ 343,243
2,794,444
$		 Facilities
20,384,000
$ 6,272,000
26,656,000
$		 Amount
advanced
2,206,081
$ 308,919
2,515,000
$

~19~

(7) Inventories

Raw materials and supplies
Work in process
Finished goods		 September30,2016
3,225,830
$ 13,744,949
7,368,355
24,339,134
$		 December31,2015
3,952,699
$ 13,906,846
12,338,887
30,198,432
$		 September30,2015
4,490,269
$ 18,274,505
12,243,037
35,007,811
$

Expenses and losses incurred on inventories are as follows:

Cost of inventories sold
Loss on (gain on reversal of)
decline in market value
Disposal loss and others
 2016
2015
2016
2015
65,748,738
$ 77,553,041
$ 191,665,466
$ 238,497,561
$ 23
8
449,941)
(
602,460)
(
33,199)
(
430,621
204,780
660,982
65,715,562
$ 77,983,670
$ 191,420,305
$ 238,556,083
$ For the three-month periods
For the nine-month periods
endedSeptember30,
endedSeptember30,		 For the nine-month periods
endedSeptember30,		 For the nine-month periods
endedSeptember30,
2016
65,748,738
$ 23
33,199)
(
65,715,562
$		 2015
238,556,083
$

  • A. The increase in net realisable value was caused by the inventories previously provided with allowance that were subsequently scrapped or sold for the nine month periods ended September 30, 2016 and 2015.

  • B. The Company’s partial inventories were damaged due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016. Related information is provided in Note 10.

(8) Investments accounted for under the equity method

Ampower Holding Ltd.
FI Medical Device
Manufacturing Co., Ltd.
TOA Optronics Corporation
Others		 September30,2016
851,080
$ 331,174
244,208
101,719
1,528,181
$		 December31,2015
881,351
$ 321,683
310,074
97,478
1,610,586
$		 September30,2015
858,301
$ 227,125
337,109
104,567
1,527,102
$

The operating results of the Group’s share in all individually immaterial associates are summarized below:

Profit for the period from continuing
operations
Other comprehensive (loss) income
- net of tax
(
Total comprehensive income		 2016
2015
80,266
$ 14,644
$ 28,844)

46,540
(
51,422
$ 61,184
$ For the three-month periods
ended September30,		 For the nine-month periods
ended September30,		 For the nine-month periods
ended September30,
2016
80,266
$
28,844)

51,422
$		 2016
215,524
$ 44,984)

170,540
$		 2015
124,691
$ 9,844
134,535
$

~20~

(9) Property, plant and equipment

2016

2016
Transfer, net
exchange
differences
At January1 Additions Disposals and others At September 30
Cost:
Land 3,852,792
$		 $ - $ - $ - $ 3,852,792
Buildings 185,696,326 60,144 ( 1,095,110) 7,356,452 192,017,812
Machinery and equipment 432,460,229 208,797 ( 3,211,841) 6,952,984 436,410,169
Others 33,632,482 33,880 ( 386,715) 2,622,209 35,901,856
655,641,829 302,821 ( 4,693,666) 16,931,645 668,182,629
Accumulated depreciation
and impairment:
Buildings ( 95,892,428) ( 8,561,012) 620,827 783,437 ( 103,049,176)
Machinery and equipment ( 352,326,878) ( 19,097,286) 3,040,275 1,562,473 ( 366,821,416)
Others ( 26,880,493) ( 3,183,541) 455,995 169,565 ( 29,438,474)
( 475,099,799) ( 30,841,839) 4,117,097 2,515,475 ( 499,309,066)
Unfinished construction and
equipment under acceptance 18,940,710 35,080,088 ( 2,260) ( 20,453,231) 33,565,307
$ 199,482,740 $ 202,438,870
2015
Transfer, net
exchange
differences
At January1 Additions Disposals and others At September 30
Cost:
Land 3,852,792
$		 $ - $ - $ - $ 3,852,792
Buildings 185,352,098 63,189 ( 283,909) 816,738 185,948,116
Machinery and equipment 432,578,807 698,858 ( 11,128,253) 8,316,459 430,465,871
Others 30,029,063 289,506 ( 2,142,217) 5,191,396 33,367,748
651,812,760 1,051,553 ( 13,554,379) 14,324,593 653,634,527
Accumulated depreciation
and impairment:
Buildings ( 83,503,695) ( 9,951,648) 215,352 190,773 ( 93,049,218)
Machinery and equipment ( 325,264,991) ( 27,041,922) 10,097,002 ( 2,749,908) ( 344,959,819)
Others ( 22,124,028) ( 3,093,675) 2,016,335 ( 3,303,660) ( 26,505,028)
( 430,892,714) ( 40,087,245) 12,328,689 ( 5,862,795) ( 464,514,065)
Unfinished construction and
equipment under acceptance 12,689,797 14,976,365 ( 758,583) ( 12,017,234) 14,890,345
$ 233,609,843 $ 204,010,807

A. Amount of borrowing costs capitalised as part of property, plant and equipment and the range of the interest rates for such capitalisation are as follows:

the interest rates for such capitalisation are as follows:
Amount capitalised
Range of the interest rates for capitalisation		 For the nine-month period
ended September 30,2016
144,629
2.00%~2.26%

~21~

  • B.The Group evaluated the recoverable amount for assets with impairment indicators; the impairment loss for the three-month and nine-month periods ended September 30, 2015 was $512 and $481,634, respectively, and shown under “other gains and losses”.

  • C. Information about the property, plant and equipment that were pledged to others as collateral is provided in Note 8.

  • D. As of September 30, 2016, December 31, 2015, and September 30, 2015, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to $1,563,475, $3,110,696 and $1,186,341, respectively.

  • E. The Company’s partial property, plant and equipment was damaged due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016. Related information is provided in Note 10.

  • (10) Investment property

Investment property
Cost:
Land
Buildings
Accumulated
depreciation and
impairment:
Buildings

Cost:
Land
Buildings
Accumulated
depreciation and
impairment:
Buildings
(		 2016 AtSeptember30
188,247
$ 439,228
627,475
51,369)

576,106
$ At September 30
188,247
$ 564,109
752,356
68,559)
(
683,797
$
AtJanuary1
188,247
$ 564,109
752,356
71,853)
(
(
680,503
$ (		 Additions
Transfers
-
$ -
$ -
124,881)
(
-
124,881)
(
8,451)

28,935
(
8,451)
$ 95,946)
($ 2015
At January1
188,247
$ 568,440
756,687
63,010)

(
693,677
$ (		 Additions
-
$ -
(
-
(
9,880)

9,880)
$		 Disposals
-
$ 4,331)

4,331)

4,331

-
$

The fair value of the investment property held by the Group as at September 30, 2016, December 31, 2015, and September 30, 2015 was $1,077,466, $1,077,466 and $1,110,523, respectively. The amounts mentioned above represent valuation results of comparative method based on market trading information categorised within Level 3 in the fair value hierarchy.

~22~

(11) Intangible assets

A. Intangible assets are goodwill, payments for TFT-LCD related technology and royalty.

At January1
Additions
Cost:
Patents and royalty
8,152,685
$ -
$ Goodwill
17,096,628
-
Others
4,215,500
6,389
(
29,464,813
6,389
(
Accumulated amortization
and impairment:
Patents and royalty
6,668,709)
(
652,979)
(
Others
3,453,248)
(
245,963)
(
10,121,957)
(
898,942)
(
19,342,856
$ 892,553)
($ At January1
Additions
Cost:
Patents and royalty
8,137,035
$ -
$ Goodwill
17,096,628
-
Others
3,993,161
226,086
(
29,226,824
226,086
(
Accumulated amortization
and impairment:
Patents and royalty
5,735,685)
(
712,692)
(
Others
3,272,002)
(
224,178)
(
9,007,687)
(
936,870)
(
20,219,137
$ 710,784)
($ (		 2016
Disposals
-
$ -
49,932)

49,932)

-
49,932
49,932
-
$ 2015
Disposals
-
$ -
95,624)

95,624)

-
95,064
(
95,064
(
560)
$

B. Details of amortization on intangible assets are as follows:

Operating costs
Operating expenses		 2016
2015
249,536
$ 250,235
$ 47,488
40,090
297,024
$ 290,325
$ For the three-month periods
ended September30,		 For the nine-month periods
ended September30,		 For the nine-month periods
ended September30,
2016
249,536
$ 47,488
297,024
$		 2016
752,512
$ 146,430
898,942
$		 2015
751,950
$ 184,920
936,870
$

~23~

  • C. The Company performed impairment analysis for recoverable amount of the goodwill at each reporting date and used the value in use as the basis for calculation of the recoverable amount. The value in use was calculated based on the estimated present value of future cash flows for five years. Based on the periodic evaluation, the Company did not recognize impairment loss on goodwill.

(12) Short-term borrowings

goodwill.
Short-term borrowings
Type of borrowings
Bank loans
Credit loans
Range of interest rates		 September30,2016
15,985,949
$ 0.8%~1.31%		 Collateral
None

As of December 31, 2015 and September 30, 2015, the Group has no short-term borrowings.

- (13) Long term borrowings

Type of loans
Syndicated bank
loans
Less:
Administrative
expenses
charged by
syndicated banks
Current portion
Range of interest
rates		 Period
September30,2016
December31,2015
September30,2015
2015/3/12
~2018/3/12
43,840,000
$ 60,280,000
$ 60,280,000
$ 188,827)
(
288,794)
(
322,117)
(
16,369,190)
(
16,361,238)
(
16,352,150)
(
27,281,983
$ 43,629,968
$ 43,605,733
$ 1.77%~2.06%
1.90%~2.19%
1.9571%

  • A. Please refer to Note 8 for the information on assets pledged as collateral for long-term borrowings.

  • B. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability ratio, interest coverage, and tangible net equity, which were based on the Company’s annual consolidated financial statements audited by independent auditors. The Company’s financial ratios on the consolidated financial statements for the year ended December 31, 2015 are in compliance with the covenants on the syndicated loan agreement.

  • C. In order to repay the unpaid balance of the medium and long-term syndicated loans as specified in the “Agreed-upon Repayment Agreement” which was signed on April 5, 2012, the Board of Directors during its meeting on February 10, 2015 approved the proposal for the Company to apply for a new syndicated credit line of $68.5 billion with certain financial institutions. Subsequently, on March 12, 2015, the Company acquired consent of all financial institution creditors to terminate the ‘‘Agreed-upon Repayment Agreement’’, and waive negotiation on the debt issue.

~24~

  • D. For repayment of borrowings from financial institutions and finance mid-term working capital requirements, the Company entered into a contract for a syndicated loan with financial institutions amounting to $35 billion. As of September 30, 2016, the Company has not yet made any drawdown from the said line of credit, but has recognised the syndicated loan arrangement fees as prepayment in the amount of $177,298.

  • (14) Pensions

  • A. Defined benefit pension plan

    • (a) The Company and its domestic subsidiaries have a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005, and service years thereafter of employees who choose to continue to be subject to the pension mechanism under the Law.

    • (b) The Company suspended its contributions to the pension reserve as agreed by the Science Park Administration in June 2013.

  • B. Defined contribution pension plan

    • (a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan under the Labor Pension Act, covering all regular employees with R.O.C. nationality.

    • (b) The subsidiaries in Mainland China have defined contribution plans. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC) are based on certain percentages of employees’ monthly salaries and wages.

    • (c) The pension costs under the defined contribution pension plans of the Group for the threemonth and nine-month periods ended September 30, 2016 and 2015 were $499,603, $608,073, $1,525,726 and $1,742,337, respectively.

  • (15) Share-based payment

  • A. The information on the Company’s share-based payment compensation plan negotiated with employees is provided in Note 6(14) of the consolidated financial statements for the year ended December 31, 2015.

~25~

  • B. The details of the employee stock option plan for the nine-month periods ended September 30, 2016 and 2015 are as follows:
B. The details of the employee stock option plan for the nine-month periods ended September 30,
2016 and 2015 are as follows:		 e stock option plan for the nine-month periods ended September 30,
ws:		 e stock option plan for the nine-month periods ended September 30,
ws:		 e stock option plan for the nine-month periods ended September 30,
ws:		 e stock option plan for the nine-month periods ended September 30,
ws:		 e stock option plan for the nine-month periods ended September 30,
ws:
Weighted
Weighted
Weighted average
average
Range of
average
stock price of
Quantity (in
exercise
exercise
remaining
stock options
thousand
price
price
vesting
at exercise
StockOptions
units)
(in dollars)
(in dollars)
period
date(in dollars)
Outstanding options at the
beginning of the period
50,000
21.87
$ Options exercised
-
-
9.99
$ Options expired
50,000)
(
21.87
Outstanding options at the
end of the period
-
-
-
$ -
Exercisable options
at the end of the period
-
-
For the nine-monthperiod endedSeptember30,2016
Weighted
Weighted
Weighted average
average
Range of
average
stock price of
Quantity (in
exercise
exercise
remaining
stock options
thousand
price
price
vesting
at exercise
StockOptions
units)
(indollars)
(indollars)
period
date (indollars)
Outstanding options at the
beginning of the period
70,000
25.63
$ Options exercised
-
-
14.68
$ Options expired
20,000)
(
32.59
Outstanding options at the
end of the period
50,000
22.85
22.85
$ 0.64 years
Exercisable options
at the end of the period
50,000
22.85
For the nine-monthperiod endedSeptember30,2015		 For the nine-monthperiod endedSeptember30,2016
Weighted average
stock price of
stock options
at exercise
date(in dollars)
Weighted
average
exercise
price
(indollars)
25.63
$ -
32.59
22.85
22.85		 Range of
exercise
price
(indollars)
22.85
$		 Weighted
average
remaining
vesting
period
0.64 years		 Weighted average
stock price of
stock options
at exercise
date (indollars)
14.68
$

C. For the three-month and nine-month periods ended September 30, 2016 and 2015, the expenses incurred from share-based payment arrangements were $1,950, $35,526, $13,910 and $104,255, respectively.

(16) Provisions-current

respectively.
Provisions-current
At January 1, 2016
Additions during the period
Used during the period
(
At September 30, 2016		 Warranty
808,136
$ 1,220,000
906,959)

(
1,121,177
$		 Litigation and others
4,743,623
$ 1,018,915
4,231,538)

(
1,531,000
$		 Total
5,551,759
$ 2,238,915
5,138,497)

2,652,177
$

A. Warranty

The Group provides warranty on TFT-LCD panel products sold. Provision for warranty is estimated based on historical warranty data of TFT-LCD panel products.

~26~

B. Litigation and others

Litigation and other provisions for the Group are related to patents of TFT-LCD panel products and anti-trust litigations. For information on estimation of provisions, please refer to Note 9(1).

(17) Share capital

As of September 30, 2016, the Company’s authorized and outstanding capital were $120,000,000 (including $500,000 reserved for employee stock options) and $99,522,104, respectively, with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected. Movements in the number of the Company’s ordinary shares outstanding are as follows:

At January 1
Cancellation of restricted stock to employees
(
At September 30		 2016
Number of ordinary
shares(in thousands)
9,953,237
1,027)

(
9,952,210		 2015
Number of ordinary
shares(in thousands)
9,954,536
953)

9,953,583

  • A. The Board of Directors of the Company resolved to increase capital for cash by issuing the GDR and had been completed in January 2013. The Company issued 1,125,000 thousand shares of common stock for cash, with a unit of GDR representing 10 shares of common stock at the Luxembourg Stock Exchange which raised a total of $14,519,051, net of issuance cost. As of September 30, 2016, there were 213 thousand units outstanding, representing 2,134 thousand shares of common stocks.

  • B. The Company adopted a resolution in 2013 to issue restricted shares to employees, consisting of 36,263 thousand shares without consideration and 36,263 thousand shares with consideration (the price for subscription is $5 per share). Until the vesting conditions are met by employees, those shares are restricted with regard to transfer of voting rights, dividend and other rights. As of September 30, 2016 and 2015, the Company bought back 1,027 and 953 thousand shares of unvested restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.

  • C. The common stock issued by the Company in 2006 through private placement was 570,929 thousand shares. The rights and obligations of the private common shares were the same as other issued common shares, except for the transfer restriction under R.O.C. Securities and Exchange Act and the listing restriction that no public listing will be allowed within three years since the day of issuance and only if the Company completes the application to publicly issue the shares. The Board of Directors of the Company approved the public issuance of the above private common shares on April 28, 2015. As approved by Financial Supervisory Committee on July 30, 2015, the stocks were officially listed in the Taiwan Stock Exchange starting from August 7, 2015.

~27~

(18) Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Accumulated deficit shall first be covered by retained earnings before the capital reserve can be used to cover the accumulated deficit.

At January 1
Cancellation of restricted stock to
employees
Vested restricted stock to employees
Changes in restricted stock to
employees
Expiration of employee stock options
Changes in net equity of long-term
equity investments
At September 30		 2016
Share of
profit (loss)
of associates
accounted for
Restricted
under equity
Employee
stock to
Sharepremium
method
stock options
employees
Total
99,101,649
$ 36,458
$ 393,500
$ 111,957
$ 99,643,564
$ -
-
-
10,268
10,268
117,457
-
-
117,457)
(
-
-
-
-
3,916)
(
3,916)
(
393,500
-
393,500)
(
-
-
-
2,570)
(
-
-
2,570)
(
99,612,606
$ 33,888
$ -
$ 852
$ 99,647,346
$		 Total

~28~

2015

At January 1
Cancellation of restricted stock to
employees
Vested restricted stock to employees
Changes in restricted stock to
employees
Compensation related to share-based
payment
Expiration of employee stock options
Changes in net equity of long-term
equity investments
Changes in non-controlling interests
At September 30		 Share of
profit (loss)
of associates
accounted for
Restricted
under equity
Employee
stock to
Sharepremium
method
stock options
employees
Total
97,972,912
$ 9,273
$ 1,373,859
$ 228,325
$ 99,584,369
$ -
-
-
9,536
9,536
123,522
-
-
123,522)
(
-
-
-
-
2,883)
(
2,883)
(
-
-
11,364
-
11,364
1,003,099
-
1,003,099)
(
-
-
-
27,185
-
-
27,185
38
-
-
-
38
99,099,571
$ 36,458
$ 382,124
$ 111,456
$ 99,629,609
$		 Total

(19) Retained earnings

  • A. Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be offset against prior years’ operating losses, then set aside 10% of the remaining amount as legal reserve (until the legal reserve equals the paid-in capital). Preferred dividend shall be distributed after setting aside or reversing a special reserve according to related regulations. The appropriation of the remaining amount along with the unappropriated earnings from previous years shall be proposed by the Board of Directors and resolved by the shareholders. The Company is in an emerging industry which is growing rapidly, and has a capital intensive business. The Company is at the stage of stable growth. In order to cooperate with the Company’s long-term financial plan in the future, investment environment and business competition situation, the appropriation of dividends shall be proposed by the Board of Directors and resolved by the shareholders, taking into account the future capital expenditure budget and capital requirement of the Company. However, the stock dividends distributed to shareholders shall not exceed two-thirds of distributable dividends in current period.

  • B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the balance of the reserve exceeds 25% of the Company’s paid-in capital.

~29~

  • C. The details of the appropriations of 2015 and 2014 earnings which was approved at the stockholders’ meeting in June 2016 and 2015 are as follows:

Years ended December 31,

Legal reserve
Cash dividends		 Dividends per
Amount
share (indollars)
1,081,560
$ 1,989,810
0.20
$ 3,071,370
$ 2015		 2014 2014
Amount
1,081,560
$ 1,989,810
3,071,370
$		 Amount
2,167,676
$ 6,947,188
9,114,864
$		 Dividends per
share (indollars)
0.70
$
  • D. For the information relating to employees’ compensation and directors’ and supervisors’ remuneration, please refer to Note 6(25).

(20) Other equity items

remuneration, please refer to Note 6(25).
Other equity items		 ote 6(25).
Available-
Employee
Currency
for-sale
unearned
translation
investments
compensation
Total
At January 1
1,695,294
$ 1,074,445
$ 19,402)
($ 2,750,337
$ Revaluation of available-for-sale
investments - gross
-
1,285,390)
(
-
1,285,390)
(
Revaluation transfer of
available-for-sale investment - gross
-
70,990
-
70,990
Currency translation differences
4,652,473)
(
-
-
4,652,473)
(
Changes in restricted stocks to
employees
-
-
3,977
3,977
Compensation related to share-based
payment
-
-
13,910
13,910
Share of subsidiaries and other
comprehensive loss of associates
44,984)
(
-
-
44,984)
(
Effect of income tax
-
30,743)
(
-
30,743)
(
At September 30
3,002,163)
($ 170,698)
($ 1,515)
($ 3,174,376)
($ 2016		 2016
Total

~30~

Other income
Available-
Employee
Currency
for-sale
Hedging
unearned
translation
investments
reserve
compensation
Total
At January 1
3,082,948
$ 1,259,847)
($ 247,070
$ 142,515)
($ 1,927,656
$ Fair value losses of cash flow hedges
-
-
5)
(
-
5)
(
Reclassified as current income of cash
flow hedges
-
-
297,670)
(
-
297,670)
(
Revaluation of available-for-sale
investments - gross
-
2,921,774
-
-
2,921,774
Revaluation transfer of available-for-
sale investment - gross
-
37,274)
(
-
-
37,274)
(
Currency translation differences
14,982
-
-
-
14,982
Changes in restricted stocks to
employees
-
-
-
2,411
2,411
Compensation related to share-based
payment
-
-
-
92,891
92,891
Share of subsidiaries and other
comprehensive loss of associates
9,844
-
-
-
9,844
Effect of income tax
-
50,211
50,605
-
100,816
At September 30
3,107,774
$ 1,674,864
$ -
$ 47,213)
($ 4,735,425
$ 2015
2016
2015
2016
2015
Rental revenue
40,613
$ 40,218
$ 123,408
$ 126,864
$ Interest income
40,434
114,613
212,458
359,230
Dividend income
50,157
31,055
177,880
223,677
Payables reclassified to other
income
25,014
4,017
859,983
36,603
Other income
284,154
334,401
1,265,805
859,514
440,372
$ 524,304
$ 2,639,534
$ 1,605,888
$ For the three-month periods
For the nine-month periods
ended September30,
ended September30,		 2015 2015
Total
2016
123,408
$ 212,458
177,880
859,983
1,265,805
2,639,534
$		 2015
126,864
$ 359,230
223,677
36,603
859,514
1,605,888
$

(21) Other income

~31~

(22) Other gains and losses

(23) Finance costs
2016
2015
2016
2015
Net (loss) gain on financial
assets and liabilities at fair
value through profit or loss
120,870)
($ 351,215)
($ 1,026,300
$ 529,752)
($ Net currency exchange gain
(loss)
99,182
544,636
1,101,980)
(
725,956
Gain (loss) on disposal of
investments
-
1,373
70,990)
(
91,879
Loss on disposal of
property, plant and
equipment
44,084)
(
17,597)
(
80,021)
(
176,565)
(
Impairment loss
-
108,512)
(
-
589,634)
(
Litigation loss and others
611,112)
(
858,112)
(
2,149,522)
(
4,009,217)
(
676,884)
($ 789,427)
($ 2,376,213)
($ 4,487,333)
($ For the three-month periods
For the nine-month periods
endedSeptember30,
endedSeptember30,
2016
2015
2016
2015
Interest expense:
Bank borrowings
154,944
$ 373,577
$ 749,794
$ 1,380,878
$ Others
-
-
-
3,939
(Gain) loss on fair value
change of financial
instruments:
Gain on cash flow hedges,
reclassified from equity
-
-
-
297,670)
(
Factoring expense of
accounts receivable
11,674
-
15,385
-
166,618
$ 373,577
$ 765,179
$ 1,087,147
$ For the three-month periods
For the nine-month periods
endedSeptember30,
endedSeptember30,

~32~

(24) Expenses by nature

Expenses by nature
Employee benefit expense:
Salaries and other short-
term employee benefits
Share-based payments
Post-employment benefits
Depreciation
Amortization		 2016
2015
9,427,225
$ 11,144,752
$ 1,950
35,526
499,603
608,073
9,557,994
12,849,475
297,024
290,325
19,783,796
$ 24,928,151
$ For the three-month periods
ended September 30,		 For the nine-month periods
ended September 30,
2016
9,427,225
$ 1,950
499,603
9,557,994
297,024
19,783,796
$		 2016
28,035,492
$ 13,910
1,525,726
30,850,290
898,942
61,324,360
$		 2015
34,140,876
$ 104,255
1,742,337
40,097,125
936,870
77,021,463
$

(25) Employees’ compensation and directors’ and supervisors’ remuneration

  • A. According to the Articles of Incorporation of the Company, a ratio of profit of the current year distributable, after covering accumulated losses, shall be distributed as employees’ compensation and directors’and supervisors’remuneration. The ratio shall not be lower than 5% for employees’ compensation and shall not be higher than 0.1% for directors’ and supervisors’ remuneration.

  • B. For the nine-month period ended September 30, 2016, the employees’ compensation has not been accrued. For the three-month and nine-month periods ended September 30, 2015, employees’ compensation was accrued at $110,893 and $1,240,570, respectively. The aforementioned amount was recognized in expenses.

  • Employees’ compensation and directors’ and supervisors’ remuneration were accrued at $734,524 and $5,000, respectively, based on the earnings of current year distributable for the year ended December 31, 2015. Employees’ compensation and directors’ and supervisors’ remuneration for 2015 as resolved by the Board of Directors were $734,524 and $4,490, respectively. The difference of $510 between employees’ compensation (directors’ and supervisors’ remuneration) as resolved by the Board of Directors and the amount recognized in the 2015 financial statements was caused by a different accrual ratio and had been recorded as expense in 2016.

  • Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

~33~

(26) Income tax

A. Income tax expense

(a) Components of income tax expense:

Current tax:
Current tax on profit for
the period

Tax on undistributed
surplus earnings
Adjustments in respect of
prior years

Total current tax

Deferred tax:
Origination and reversal of
temporary differences
Income tax expense		 2016
2015
13,442)
($ 37,082)
($ -
-
14,646)
(
1,061)
(

28,088)
(
38,143)
(
505,076
637,810
(
476,988
$ 599,667
$ For the three-month periods
endedSeptember30,		 2016
2015
698,971
$ 316,955
$ 590,712
750,816
10,205)
(
10,318)
(
1,279,478
1,057,453
149,141)

2,889,989
1,130,337
$ 3,947,442
$ For the nine-month periods
endedSeptember30,
2016
698,971
$ 590,712
10,205)
(
(
1,279,478
149,141)

1,130,337
$
  • (b) The income tax (charge)/credit relating to components of other comprehensive income is as follows:
2016
2015
Fair value gains/losses on
available-for-sale
financial assets
14,448)
($ 39,098)
($ Cash flow hedges
-
-
14,448)
($ 39,098)
($ For the three-month periods
ended September 30,		 2016
2015
30,743
$ 50,211)
($ -
50,605)
(
30,743
$ 100,816)
($ For the nine-month periods
ended September 30,

  • B. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

  • C. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998.

  • D. The details of imputation system are as follows:

September 30, 2016 December 31, 2015 September 30, 2015 (a) Balance of tax credit account $ 1,407,490 $ 761,660 $ 740,097 2016 (Estimated) 2015 (Actual) (b) Estimated (actual) creditable tax rate 12.82% 5.71%

~34~

(27) Earnings per share

Earnings per share
Basic earnings (loss) per share
Profit (loss) attributable to
ordinary shareholders of
the parent
Weighted average number of
ordinary shares outstanding
(shares in thousands)
Basic earnings (loss) per share
(in dollars)
Diluted earnings per share
Profit attributable to ordinary
shareholders of the parent
Weighted average number of
ordinary shares outstanding
(shares in thousands)
Assumed conversion of all
dilutive potential ordinary
shares:
-Employees’ compensation
-Restricted stocks
Diluted earnings per share
(in dollars)		 2016
2015
3,058,266
$ 3,481,886
$
9,949,107
9,924,283
0.31
$ 0.35
$
3,058,266
$ 3,481,886
$ 9,949,107
9,924,283
-
129,903
2,887
24,439
9,951,994
10,078,625
0.31
$ 0.35
$ For the three-month periods
endedSeptember30,		 For the nine-month periods
endedSeptember30,
2016
3,058,266
$ 9,949,107
0.31
$ 3,058,266
$ 9,949,107
-
2,887
9,951,994
0.31
$		 2016
8,998,770)
($ 9,946,680
0.90)
($		 2015
17,538,787
$
9,921,724
1.77
$
17,538,787
$
9,921,724
179,398
26,704
10,127,826
1.73
$

As employee stock options had anti-dilutive effect for the nine-month period ended September 30, 2015, they were not included in the calculation of diluted earnings per share.

(28) Non-cash transaction

Investing activities with partial cash payments:

Non-cash transaction
Investing activities with partial cash payments:
Purchase of property, plant and equipment
Add: Opening balance of payable on equipment
Less: Ending balance of payable on equipment
(
Cash paid during the period		 2016
2015
35,382,909
$ 16,027,918
$ 3,974,152
2,688,976
4,454,711)

4,068,141)
(
34,902,350
$ 14,648,753
$ For the nine-month periods
ended September30,
2016
35,382,909
$ 3,974,152
4,454,711)


34,902,350
$

~35~

7. RELATED PARTY TRANSACTIONS

(1) Significant related party transactions

A. Operating revenue

Operating revenue
Sales of goods:
Others
Associates		 2016
2015
4,102,121
$ 3,062,112
$ 4,469
52,366
4,106,590
$ 3,114,478
$ For the three-month periods
ended September30,		 For the nine-month periods
ended September30,
2016
4,102,121
$ 4,469
4,106,590
$		 2016
7,852,627
$
88,379
7,941,006
$		 2015
10,965,066
$ 162,258
11,127,324
$

The collection period was 30~120 days upon delivery or on a monthly-closing basis to related parties, and 30~90 days to non-related parties. The sales prices and the trading terms to related parties above were not significantly different from those of sales to third parties.

B. Purchases of goods

Purchases of goods
Purchases of goods:
Others
Associates		 2016
2015
1,681,227
$ 2,104,259
$ 360,283
155,978
2,041,510
$ 2,260,237
$ For the three-month periods
ended September30,		 2016
2015
5,041,768
$ 6,449,885
$ 976,272
232,754
6,018,040
$ 6,682,639
$ For the nine-month periods
ended September30,
2015
6,449,885
$ 232,754
6,682,639
$

The payment term was 30~120 days to related parties after delivery, and 30~180 days to nonrelated parties after delivery or on a monthly-closing basis. The purchase prices and the payment terms from related parties above were not materially different from those of purchases from third parties.

C. Consigned processing

(a) Consigned processing

ties.
signed processing
Consigned processing
Processing costs:
Others		 2016
2015
26,410
$ 27,825
$ For the three-month periods
endedSeptember30,		 2016
2015
93,137
$ 64,010
$ For the nine-month periods
endedSeptember30,
2016
26,410
$		 2016
93,137
$

(b) Balance of consigned processing at the end of period (shown as “Other payables”)

September 30, 2016 December 31, 2015 September 30, 2015 Payables to related parties: Others $ - $ 70,229 $ 33,985

Payables to related parties:

~36~

The Group subcontracted the processing of products of associates in Mainland China. The processing fees were mainly charged based on cost plus method.

D. Accounts receivable

September 30, 2016 December 31, 2015 September 30, 2015

Receivables from related
parties:
Others
Associates		 4,959,577
$ 30,062
4,989,639
$		 2,551,425
$ 81,428
2,632,853
$		 3,636,400
$ 57,208
3,693,608
$

The receivables from related parties arise mainly from sales transactions. The receivables are due 30~120 days after the date of sale. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties.

E. Accounts payable

September 30, 2016 December 31, 2015 September 30, 2015

Payables to related parties:

ayables to related parties:
Others
Associates		 2,465,257
$ 197,919
2,663,176
$		 3,284,529
$ 75,404
3,359,933
$		 2,909,905
$ 64,832
2,974,737
$

The payables to related parties arise mainly from purchase transactions and are due 30~120 days after the date of purchase. The payables bear no interest.

F. Property transactions

Purchase of property

(a) Acquisition of property, plant and equipment:

Others 2016
2015
66,352
$ 15,583
$ For the three-month periods
ended September30,		 For the nine-month periods
ended September30,		 For the nine-month periods
ended September30,
2016
66,352
$		 2016
69,745
$		 2015
31,339
$

(b) Period-end balances arising from purchases of property (shown as “Other payables”):

September 30, 2016 December 31, 2015 September 30, 2015 Others $ 13,541 $ 7,365 $ 2,467

Sale of property

(a) Proceeds from sale of property and gain on disposal:

For the three-month period For the nine-month period ended September 30, 2015 ended September 30, 2015 Disposal proceeds Gain on disposal Disposal proceeds Gain on disposal Others $ 17 $ 8 $ 1,808 $ 45

~37~

(b) Period-end balances arising from sale of property (shown as “Other receivables”):


Others
 December31,2015

794
$		 September30,2015
50,429
$

For the nine-month period ended September 30, 2016, there was no significant sales of property between related parties.

(2) Key management compensation

property between related parties.
Key management compensation
2016
2015
Salaries and other short-term employee
benefits
48,821
$ 68,117
$ Share-based payments
-
1,636
Post-employment benefits
108
54
48,929
$ 69,807
$ For the three-month periods
endedSeptember30,		 For the nine-month periods
endedSeptember30,
2016
127,682
$ 665
350
128,697
$		 2015
127,181
$ 4,772
162
132,115
$

8. PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

Pledged asset
Other financial
assets-current
Demand deposits
Time deposits
Time deposits
Property, plant
and equipment
Intangible assets
Other financial
assets-non-
current
Time deposits		 Bookvalue September30,2015
Purpose
17,881
$ Guarantee for letter
of credit
1,149
Tariff guarantee and
land lease
-
Credit card guarantee
63,735,398
Long-term loans
and performance
guarantee for
lease payable
-
Long-term loans
and performance
guarantee for lease
payable
199,703
Tariff guarantee, land
lease and guarantee
for contract
63,954,131
$
September30,2016
-
$ 4,696
1,679
84,786,280
17,817
752
84,811,224
$		 December31,2015
-
$ 6,204
-
59,669,639
-
119,703
59,795,546
$

~38~

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT COMMITMENTS

  • －

  • (1) Contingencies Significant Litigations

  • A. Chi Mei Optoelectronics Corporation (the “CMO”), Chi Mei Optoelectronics Japan Co., Ltd., Chi Mei Optoelectronics UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics USA Inc. were investigated by the United States (the “U.S.”) Department of Justice in December 2006 for alleged violation of the anti-trust laws. Moreover, authorities of some U.S state governments, as well as the governments of the European Union, China, Brazil and Korea also started to investigate this case. In addition, certain downstream customers and consumers brought class-actions and/or individual civil lawsuits in the U.S. and Canada against the TFT-LCD companies; and in certain lawsuits, CMO and Chi Mei Optoelectronics USA Inc. were listed as defendants. Details of the investigations on significant cases related to the alleged violation of the anti-trust laws are as follows:

    • (a) The Company had reached a plea agreement with the U.S. Department of Justice in December 2009, agreeing to pay a fine of US$220 million through installment over five years. The fine had been fully paid as of February 2015.

      • The Company had also reached out-of-court settlement agreements with the plaintiffs on separate civil lawsuits in the U.S. since 2012 and recognized related losses. Further, the Company had reached out-of-court settlement agreements with fourteen State Governments since November 2011, agreeing to pay civil statutory damages in order to settle these civil lawsuits. All civil lawsuits between the Company and the U.S state governments have been settled.

    • (b) In December 2010, the Company had been ordered by the European Commission to pay a fine of EUR 300 million. After the Company appealed the case, the General Court of the European Union rendered a judgment in February 2014 lowering the fine from EUR 300 million to EUR 288 million. The Company further filed an appeal against a part of the judgment and the Court of Justice of the European Union has adjudicated to maintain the aforementioned amount of fine in July 2015.

    • (c) Except for those anti-trust litigations for which the ultimate results cannot be reliably estimated, the Company has recognized actual or estimated losses or liabilities in “other payables” and “other non-current liabilities”.

  • B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit with the United States District Court for the District of East Texas on April 25, 2011, alleging infringement of its patent. The administrative law judge has ruled a summary judgment for the lawsuit in December 2013 rendering Eidos’ patent as invalid, and the presiding judge has confirmed the summary judgment in January 2014. Eidos has filed a complaint in February 2014. The United States Court of Appeals for the Federal Circuit has rejected the judgement and sent back to the United States District Court in March 2015. The Company submitted an application to ask the United States Court of Appeals

~39~

for the Federal Circuit to rehear en banc in April 2015. Though the United States Court of Appeals rejected the request in June 2015, the Company appealed to the Supreme Court in September 2015 and petitioned for writ of certiorari. The Supreme Court of the United States has denied the appeal of the Company in November 2015. The case remains at the ruling by the United States Court of Appeals for the Federal Circuit in March 2015. However, the results of the litigation are uncertain and are dependent on the future litigation progress. The Company does not expect that the lawsuit would have a material adverse effect on the Company’s financial position or results of operations in the short-term.

(2) Commitments

A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

September 30, 2016 December 31, 2015 September 30, 2015 Property, plant and equipment $ 27,275,234 $ 37,625,398 $ 8,680,043

  • B. Operating lease commitments

The Group leases plant, land and warehouses under non-cancellable operating lease agreements. The majority of lease agreements are renewable at the end of the lease period at market rate. The Group has no significant additional operating lease agreement for the period. Please refer to Note 9(2) of the consolidated financial statements for the year ended December 31, 2015 for the related information.

  • C. Outstanding letters of credit

The outstanding letters of credit for the purchase of property, plant and equipment are as follows:

September 30, 2016 December 31, 2015 September 30, 2015 Outstanding letters of credit $ 1,888,358 $ 474,222 $ 373,657

10. SIGNIFICANT DISASTER LOSS

The Company’s partial inventories and buildings were damaged due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016. The Company has conducted a preliminary disaster assessment and a conservative estimation on insurance claim to assess possible disaster loss. However, the Company has full earthquake insurance and business interruption insurance to cover the operating costs of inventories and building during the repair period. The Company is actively processing the insurance claims. According to the initial assessment, the Company has no other material loss on property after taking the insurance claims into account.

11. SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

None.

12. OTHERS

(1) Capital management

No significant changes during the period. Please refer to Note 12 in the consolidated financial statements for the year ended December 31, 2015.

~40~

(2) Financial instruments

  • A. Fair value information of financial instruments

  • The carrying amounts of the Group’s financial instruments not measured at fair value (including cash and cash equivalents, accounts receivable, other receivables, other financial assets-current, short-term loans, accounts payable, other payables and long-term loans) are approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note 12(3).

  • B. Financial risk management policies

  • No significant changes during the period. Please refer to Note 12 in the consolidated financial statements for the year ended December 31, 2015.

  • C. Significant financial risks and degrees of financial risks

  • Except for the following description, there is no significant change during the period. Please refer to Note 12 in the consolidated financial statements for the year ended December 31, 2015.

  • (a) Market risk

Foreign exchange risk

  • a) The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

  • b) The Group’s businesses involve some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency: NTD; other certain subsidiaries’ functional currency: RMB). Based on the simulations performed, the impact on post-tax profit of a 1% exchange rate fluctuation would be an increase of $418,641 and $123,343 for the ninemonth periods ended September 30, 2016 and 2015, respectively. The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

~41~

Foreign
Currency
Exchange
Amount
Rate
Book Value
(In Thousands)
(Note)
(NTD)
Financial assets
Monetary items
USD
6,424,313
$ 31.36
201,466,456
$ JPY
8,008,600
0.31
2,482,666
EUR
80,299
35.08
2,816,889
Non-monetary items
USD
2,388,718
$ 31.36
74,910,196
$ HKD
232,569
4.04
939,579
JPY
5,286,173
0.31
1,638,714
EUR
3,646
35.08
127,902
USD
4,909,977
$ 31.36
153,976,879
$ JPY
30,225,250
0.31
9,369,828
EUR
44,333
35.08
1,555,202
September 30,2016
Financial liabilities
Monetary items
Financial assets
Monetary items
USD
JPY
EUR
Non-monetary items
USD
HKD
JPY
EUR
USD
JPY
EUR
Financial liabilities
Monetary items		 December 31,2015 December 31,2015 December 31,2015
Foreign
Currency
Exchange
Amount
Rate
Book Value
(In Thousands)
(Note)
(NTD)
4,589,186
$ 32.83
150,662,976
$ 9,363,752
0.27
2,528,213
75,963
35.88
2,725,552
2,342,530
$ 32.83
76,905,260
$ 178,232
4.24
755,704
5,527,619
0.27
1,492,457
3,697
35.88
132,648
4,009,239
$ 32.83
131,623,316
$ 29,629,471
0.27
7,999,957
3,440
35.88
123,427
September 30,2015		 Book Value
(NTD)
Foreign
Currency
Amount
(In Thousands)
4,406,103
$ 1,300,279
70,654
2,349,674
$ 200,145
5,495,501
3,821
3,871,457
$ 29,840,243
3,853		 Exchange
Rate
(Note)
32.87
0.27
36.92
32.87
4.24
0.27
36.92
32.87
0.27
36.92		 Book Value
(NTD)
144,828,606
$ 351,075
2,608,546
77,233,784
$ 848,615
1,483,785
141,071
127,254,792
$ 8,056,866
142,253

Note: Exchange rate represents the amount of NT dollars for which one foreign currency could be exchanged.

c) Total exchange gain (loss), including realized and unrealized arising from significant foreign exchange variation on the monetary items held by the Group for the three-month and nine-month periods ended September 30, 2016 and 2015 amounted to $99,182, $544,636, ($1,101,980) and $725,956, respectively.

~42~

Price risk

The Group’s investments in equity securities comprise domestic listed and unlisted stocks. The prices of equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased/decreased by 20% with all other variables held constant, post-tax profit for the nine-month periods ended September 30, 2016 and 2015 would have increased/decreased by $52,142 and $49,909, respectively, as a result of gains/losses on equity securities classified as at fair value through profit or loss; other components of equity would have increased/decreased by $1,119,606 and $1,548,385, respectively, as a result of gains/losses on equity securities classified as available-for-sale.

Interest rate risk

  • a) The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During the nine-month periods ended September 30, 2016 and 2015, the Group’s borrowings at variable rate were denominated in the NTD, USD and RMB.

  • b) Based on the simulations performed, the impact on post-tax profit of a 0.25% shift would be a maximum increase of $109,600 or decrease of $150,700 for the twelve-month periods ended September 30, 2016 and 2015, respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the management.

  • (b) Credit risk

No significant changes during the period. Please refer to Note 12 in the consolidated financial statements for the year ended December 31, 2015.

  • (c) Liquidity risk

  • a) The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for nonderivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

Non-derivative financial liabilities

September 30,2016
Short-term borrowings
Accounts payable
Other payables
Long-term borrowings
(including current portion)		 Less than
1year
15,985,949
$ 51,514,867
20,798,253
16,440,000		 Between 1
and 3years
-
$ -
-
27,400,000		 Between 3
and 5years
-
$ -
-
-		 Over 5
years
-
$ -
-
-		 Total
15,985,949
$ 51,514,867
20,798,253
43,840,000

~43~

Less than Between 1 Between 3 Over Over 5
December 31,2015 1year and 3years and 5years years Total
Accounts payable $ 60,429,884 -
$		 -
$		 $ - $ 60,429,884
Other payables 24,912,360 - - - 24,912,360
Long-term borrowings
(including current portion) 16,440,000 43,840,000 - - 60,280,000
Less than Between 1 Between 3 Over 5
September 30,2015 1year and 3years and 5years years Total
Accounts payable 63,117,993 - - - 63,117,993
Other payables 23,128,829 - - - 23,128,829
Long-term borrowings
(including current portion) 16,440,000 43,840,000 - - 60,280,000
Derivative financial liabilities
Less than Between 1
September30,2016 1year and3 years Total
Forward exchange contracts
$		 275,457 $ - $ 275,457
Less than Between 1
December 31,2015 1year and 3years Total
Forward exchange contracts
$		 265,525 $ - $ 265,525
Less than Between 1
September30,2015 1year and3 years Total
Forward exchange contracts
$		 115,599 $ - $ 115,599 
  - b) The related information on the repayment of the medium and long-term syndicated loans from the ‘‘Agreed-upon Agreement’’ is described in Note 6(13).

  • (3) Fair value estimation

  • A.Details of the fair value of the Group’s financial assets and financial liabilities not measured at fair value are provided in Note 12(2)A. Details of the fair value of the Group’s investment property measured at cost are provided in Note 6(10).

  • B.The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:

    • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group’s investment in listed stocks and on-the-run bonds is included in Level 1.

    • Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of the Group’s investment in derivative instruments is included in Level 2.

    • Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s investment in equity investment without active market is included in Level 3.

~44~

  • C.The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at September 30, 2016, December 31, 2015 and September 30, 2015 is as follows:
September30,2016
Assets
Recurring fair value measurements
Financial assets at fair value
through profit or loss
Equity securities
Forward exchange contracts
Available-for-sale financial assets
Equity securities
Liabilities
Recurring fair value measurements
Financial liabilities at fair value
through profit or loss
Forward exchange contracts
December31,2015
Assets
Financial assets at fair value
through profit or loss
Equity securities
Forward exchange contracts
Available-for-sale financial assets
Equity securities
Liabilities
Financial liabilities at fair value
through profit or loss
Forward exchange contracts
Recurring fair value measurements
Recurring fair value measurements		 Level 1
260,708
$ -
4,936,453
5,197,161
$ -
$ Level 1
281,922
$ -
6,403,449
6,685,371
$ -
$		 Level 2
-
$ 354,487
-
354,487
$ 275,457
$ Level 2
-
$ 120,036
-
120,036
$ 265,525
$		 Level3
-
$ -
661,576
661,576
$ -
$ Level3
-
$ -
719,585
719,585
$ -
$		 Total
260,708
$ 354,487
5,598,029
6,213,224
$ 275,457
$ Total
281,922
$ 120,036
7,123,034
7,524,992
$
265,525
$

~45~

September30,2015
Assets
Financial assets at fair value
through profit or loss
Equity securities
Forward exchange contracts
Available-for-sale financial assets
Equity securities
Debt securities
Liabilities
Financial liabilities at fair value
through profit or loss
Forward exchange contracts
Recurring fair value measurements
Recurring fair value measurements		 Level 1
249,543
$ -
6,997,931
220,000
7,467,474
$ -
$		 Level 2
-
$ 221,468
-
-
221,468
$ 115,599
$		 Level3
-
$ -
743,996
-
743,996
$ -
$		 Total
249,543
$ 221,468
7,741,927
220,000
8,432,938
$
115,599
$

  • D.The methods and assumptions the Group used to measure fair value are as follows:

  • (a)The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

Listed shares Emerging stocks Corporate bond Market quoted price Closing price Last transaction price Weighted average quoted price

  • (b)Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.

  • (c)When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Group adopts valuation technique that is widely used by market participants. The inputs used in the valuation method to measure these financial instruments are normally observable in the market.

  • (d)The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate.

  • (e)The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk and etc. In accordance with the

~46~

Group’s management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.

  • (f)The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.

  • E.For the nine-month periods ended September 30, 2016 and 2015, there was no transfer between Level 1 and Level 2.

  • F.The following table presents the changes in level 3 instruments as at September 30, 2016 and 2015:

At January 1
Transfers out from level 3
Gains and losses recognized in other comprehensive
income
(
At September 30		 2016
2015
719,585
$ 1,841,097
$ -
903,073)
(
58,009)

194,028)
(
661,576
$ 743,996
$ Equitysecurities

  • G.For the nine-month periods ended September 30, 2016 and 2015, there was no transfer into or out from Level 3. As the shares of General Interface Solution (GIS) Holding Limited had been listed in June 2015, the Group transferred the fair value from Level 3 into Level 1 at the end of the month when the event occurred.

  • H.Investment management segment is in charge of valuation procedures for fair value measurements being categorized within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and represented as the exercisable price, and frequently calibrating valuation model, performing back-testing, updating inputs used to the valuation model and making any other necessary adjustments to the fair value.

  • Investment management segment set up valuation policies, valuation processes and rules for measuring fair value of financial instruments and ensure compliance with the related requirements in IFRS.

~47~

I.The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

measurement:
Non-derivative
equity instrument:
Unlisted shares
Venture capital
shares
Private equity
fund investment
Private placement
shares (emerging
companies)
Non-derivative
equity instrument:
Unlisted shares
Venture capital
shares
Private equity
fund investment
Private placement
shares (emerging
companies)		 Fair value at
September 30,
2016		 Valuation
technique		 Significant
unobservable input		 Range
(weighted
average)		 Relationship of
inputs to fair value
383,029
$ 27,107
251,440
Fair value at
December
31,2015		 Market
comparable
companies
Net asset
value
Market price
method
Valuation
technique		 Price to earnings ratio
multiple, price to
book ratio multiple,
control premium
Discount for lack of
marketability
Not applicable
Discount for lack of
marketability
Significant
unobservable input		 0.68~1.47
(0.59)
30%~70%
(31%)
301
(301)
30%
(30%)
Range
(weighted
average)		 The higher the
multiple and control
premium, the higher
the fair value
The higher the
discount for lack of
marketability, the
lower the fair value
Not applicable
The higher the
discount for lack of
marketability, the
lower the fair value
Relationship of
inputs to fair value
388,799
$ 28,596
302,190		 Market
comparable
companies
Net asset
value
Market price
method		 Price to earnings ratio
multiple, price to
book ratio multiple,
control premium
Discount for lack of
marketability
Not applicable
Discount for lack of
marketability		 0.56~1.41
(0.70)
20%~70%
(22%)
318
(318)
30%
(30%)		 The higher the
multiple and control
premium, the higher
the fair value
The higher the
discount for lack of
marketability, the
lower the fair value
Not applicable
The higher the
discount for lack of
marketability, the
lower the fair value

~48~

Non-derivative
equity instrument:
Unlisted shares
Venture capital
shares
Private equity
fund investment
Private placement
shares (emerging
companies)		 Fair value at
September 30,
2015		 Valuation
technique		 Significant
unobservable input		 Range
(weighted
average)		 Relationship of
inputs to fair value
461,542
$ 28,634
253,820		 Market
comparable
companies
Net asset
value
Market price
method		 Price to earnings ratio
multiple, price to
book ratio multiple,
control premium
Discount for lack of
marketability
Not applicable
Discount for lack of
marketability		 0.66~1.12
(0.81)
20%~70%
(22%)
318
(318)
30%
(30%)		 The higher the
multiple and control
premium, the higher
the fair value
The higher the
discount for lack of
marketability, the
lower the fair value
Not applicable
The higher the
discount for lack of
marketability, the
lower the fair value
  • J.The Group has carefully assessed the valuation models and assumptions used to measure fair value; therefore, the fair value measurement is reasonable. However, use of different valuation models or assumptions may result in different measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have changed:
Financialassets Period
2016/9/30
2015/12/31
2015/9/30		 Input Change Recognised in other
comprehensiveincome		 Recognised in other
comprehensiveincome
Favourable
change		 Unfavourable
change
Equity instrument
Equity instrument
Equity instrument		 $ 661,576
719,585
743,996		 ±
1%
±
1%
±
1%		 $ 6,616
7,196
7,440		 ($ 6,616)
(
7,196)
(
7,740)

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

  • A. Loans to others: Please refer to table 1.

  • B. Provision of endorsements and guarantees to others: None.

  • C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 2.

  • D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.

  • E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None.

  • F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.

~49~

  • G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 3.

  • H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 4.

  • I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes 6(2) and 6(4).

Significant inter-company transactions during the reporting periods: Please refer to table 5.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 6.

  • (3) Information on investments in Mainland China

  • A. Basic information: Please refer to table 7.

  • B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to table 1, 3, 4 and 5.

14. SEGMENT INFORMATION

(1) General information

The Group is primarily engaged in research, development, manufacture and sale of TFT LCD. The chief operating decision-maker considered the business from a perspective of product size of TFT LCD. TFT LCD products are currently classified into big size and small-medium size. Because the Company met the criteria for combining the segment information of big-size and small-mediumsize TFT LCD departments, the Company disclosed only one reportable operating segment for all TFT LCD products.

The Company’s operating segment information was prepared in accordance with the Company’s accounting policies. The chief operating decision-maker allocated resources and assesses performance of the operating segments primarily based on the operating revenue and profit (loss) before tax and discontinued operations of individual operating segment.

~50~

(2) Segment information

The segment information provided to the chief operating decision-maker for the reportable segments is as follows:

s as follows:
Segment revenue
Segment income
(loss)
Depreciation and
amortization
Capital expenditure-
property, plant
and equipment
Segment assets		 2016
2015
TFT LCD
TFT LCD
74,484,602
$ 88,756,324
$ 3,535,254
$ 4,081,335
$ (
9,855,018
$ 13,139,800
$ 20,584,961
$ 4,256,541
$ For the three-month periods
endedSeptember30,		 For the nine-month periods
endedSeptember30,
2016
TFT LCD
74,484,602
$ 3,535,254
$ 9,855,018
$ 20,584,961
$		 2016
TFT LCD
197,706,910
$ 7,868,433)
$ 31,749,232
$ 34,902,350
$ September30,2016
354,910,543
$		 2015
TFT LCD
282,669,377
$
21,488,053
$
41,020,067
$
14,648,753
$
September30,2015
396,066,511
$

Segment assets

(3) Reconciliation for segment income (loss)

A reconciliation of reported segment income (loss) and income from continuing operations before tax is provided as follows:

  • A. Reconciliation of segment revenue with operating revenue:
Segment revenue
Other revenue
Operating revenue		 2016
2015
74,484,602
$ 88,756,324
$ -
-
74,484,602
$ 88,756,324
$ For the three-month periods
endedSeptember30,		 For the nine-month periods
endedSeptember30,		 For the nine-month periods
endedSeptember30,
2016
74,484,602
$ -
74,484,602
$		 2016
197,706,910
$ -
197,706,910
$		 2015
282,669,377
$ -
282,669,377
$
  • B. Reconciliation of segment income with income (loss) from continuing operations before income tax:
tax:
Reportable segments
Others
Income/(loss) before
tax from continuing
operations		 2016
2015
2016
2015
3,535,254
$ 4,081,335
$ 7,868,433)
($ 21,488,053
$ -
256
-
3,277)
(
3,535,254
$ 4,081,591
$ 7,868,433)
($ 21,484,776
$ For the three-month periods
For the nine-month periods
ended September 30,
ended September 30,		 For the nine-month periods
ended September 30,
2016
3,535,254
$ -
3,535,254
$		 2015
21,488,053
$ 3,277)
21,484,776
$

~51~

C. Reconciliation of segment assets with total assets:

Reconciliation of segment assets with total assets: Reconciliation of segment assets with total assets: Reconciliation of segment assets with total assets:
Other significant reconciliation:
September30,2016
September30,2015
Segment assets
354,910,543
$ 396,066,511
$ Others
-
-
354,910,543
$ 396,066,511
$ 2016
2015
2016
2015
Depreciation and
amortization
9,855,018
$ 13,139,800
$ 31,749,232
$ 41,020,067
$ Others
-
-
-
13,928
9,855,018
$ 13,139,800
$ 31,749,232
$ 41,033,995
$ Capital expenditure
- property, plant and
equipment
20,584,961
$ 4,256,541
$ 34,902,350
$ 14,648,753
$ Others
-
-
-
-
20,584,961
$ 4,256,541
$ 34,902,350
$ 14,648,753
$ For the three-month periods
For the nine-month periods
endedSeptember30,
endedSeptember30,
2016
31,749,232
$ -
31,749,232
$ 34,902,350
$ -
34,902,350
$		 2015
41,020,067
$ 13,928
41,033,995
$
14,648,753
$ -
14,648,753
$

D. Other significant reconciliation:

~52~

Innolux Corporation and Subsidiaries

Loans to others For the nine months ended September 30, 2016

Table 1
No.
Creditor		 Table 1
No.
Creditor		 Borrower General
ledger
account		 Is a
related
party		 Maximum
outstanding balance
during the nine
months ended
September 30, 2016		 Balance at
September 30,
2016		 Actual amount
drawn down		 Interest
rate		 Nature of
loan		 Amount of
transactions
with the
borrower		 Reason for
short-term
financing		 Allowance
for doubtful
accounts		 Collateral Collateral Limit on loans
granted to
a singleparty
Ceiling on total
loansgranted
Footnote
Expressed in thousands of NTD
(Except as otherwise indicated)		 Limit on loans
granted to
a singleparty
Ceiling on total
loansgranted
Footnote
Expressed in thousands of NTD
(Except as otherwise indicated)		 Limit on loans
granted to
a singleparty
Ceiling on total
loansgranted
Footnote
Expressed in thousands of NTD
(Except as otherwise indicated)
Item Value
1
1
1
1
1
2
3
4
5
6		 Innocom
Technology
(Shenzhen) Co.,
Ltd
Innocom
Technology
(Shenzhen) Co.,
Ltd
Innocom
Technology
(Shenzhen) Co.,
Ltd
Innocom
Technology
(Shenzhen) Co.,
Ltd
Innocom
Technology
(Shenzhen) Co.,
Ltd
Nanjng Innolux
Technology Ltd.
Innolux
Technology
USA Inc.
Innolux
Technology
Europe B.V.
Innolux
Technology
Japan Co., Ltd.
Innolux
Optoelectronics
Japan Co., Ltd.		 Foshan Innolux
Optoelectronics
Ltd.
Ningbo Innolux
Optoelectronics
Ltd.
Ningbo Innolux
Technology Ltd.
Ningbo Innolux
Display Ltd.
Nanjing Innolux
Optoelectronics
Ltd.
Nanjing Innolux
Optoelectronics
Ltd.
Innolux Hong
Kong Ltd.
Innolux Hong
Kong Ltd.
Leadtek Global
Group Limited
Leadtek Global
Group Limited		 Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables		 Related
parties
Related
parties
Related
parties
Related
parties
Related
parties
Related
parties
Related
parties
Related
parties
Related
parties
Related
parties		 5,014,480
$
1,174,050
657,468
1,737,594
3,616,074
375,696
188,160
1,360,257
1,616,680
777,250		 5,014,480
$
1,174,050
-
1,737,594
2,864,682
375,696
188,160
1,360,257
1,616,680
777,250		 $4,987,826
1,174,050
-
1,737,594
2,864,682
375,696
188,160
1,332,402
1,616,680
777,250		 1.1%~
1.500%
1.5%
0%
1.500%
1.500%
1.5%
0.56%~
0.81%
0%~0.269%
0.5%
0.5%		 Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing		 -
-
-
-
-
-
-
-
-
-		 Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support		 -

-

-

-

-

-

-

-

-

-
 -
-
-
-
-
-
-
-
-
-		 -
-
-
-
-
-
-
-
-
-		 215,344,944
$
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944		 215,344,944
$
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944		 A
A
A
A
A
A
A
A
A
A

Table 1, Page 1

No. Creditor Borrower General
ledger
account		 Is a
related
party		 Maximum
outstanding balance
during the nine
months ended
September 30, 2016		 Balance at
September 30,
2016		 Actual amount
drawn down		 Interest
rate		 Nature of
loan		 Amount of
transactions
with the
borrower		 Reason for
short-term
financing		 Allowance
for doubtful
accounts		 Collateral Collateral Limit on loans
granted to
a singleparty		 Ceiling on total
loansgranted		 Footnote
Item Value
7
8
9
10
11
12
13		 Asiaward
Investment Ltd.
Best China
Investments Ltd.
Main Dynasty
Investment Ltd.
Mega Chance
Investments Ltd.
Sun Dynasty
Development
Limited
Magic Sun
Limited
Warriors
Technology
Investments Ltd.		 Best China
Investment Ltd.
Lakers Trading
Ltd.
Mega Chance
Investments Ltd.
Lakers Trading
Ltd.
Magic Sun
Limited
Lakers Trading
Ltd.
Lakers Trading
Ltd.		 Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables
Other
receivables		 Related
parties
Related
parties
Related
parties
Related
parties
Related
parties
Related
parties
Related
parties		 254,464
$
254,464
419,058
419,058
1,044,469
1,044,469
344,960		 254,464
$
254,464
419,058
419,058
1,044,469
1,044,469
344,960		 254,464
$
254,464
419,058
419,058
1,044,469
1,044,469
344,960		 0%
0%
0%
0%
0%
0%
0%		 Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing
Short-term
financing		 -
-
-
-
-
-
-		 Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support		 -

-

-

-

-

-

-
 -
-
-
-
-
-
-		 -
-
-
-
-
-
-		 215,344,944
$
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944		 215,344,944
$
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944
215,344,944		 A
A
A
A
A
A
A

Note A: The Company - Innolux Corporation

1.For loans obtained for short-term financing, financial limit on loans granted to a single party shall not exceed 10% of the company’s net equity, based on the most recent audited financial statements of the company.

2.The financial limit on loans granted shall not exceed 40% of the company’s net equity. If it is for short-term capital needs, the limit shall not exceed 30% of the company’s net equity.

3.The policy for loans granted to direct or indirect wholly-owned overseas subsidiaries is as follows: for short-term capital needs, financial limit shall not be below the 40% requirement, but should not exceed 100% of the company’s net equity.

Table 1, Page 2

Innolux Corporation and Subsidiaries

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures) September 30, 2016

Table 2

Expressed in thousands of NTD (Except as otherwise indicated)

Securities held by Marketable securities Relationship
with the
securities issuer		 General
ledger account		 As ofSeptember30,2016 As ofSeptember30,2016 Footnote
Number of shares Bookvalue Ownership (%) Fairvalue
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Yuan Chi Investment Co., Ltd.
Yuan Chi Investment Co., Ltd.
InnoJoy Investment Corporation
InnoJoy Investment Corporation
InnoJoy Investment Corporation
Warriors Technology Investments Ltd.
Warriors Technology Investments Ltd.
Nets trading Ltd.		 Common stock None
None
None
None
None
None
None
None
None
None
None
None
None		 Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Financial asset at fair value
through profit or loss
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current
Available-for-sale financial
assets - non-current		 900,000
150,500,000
48,283,725
89,072
44,741,305
1,439,180
9,282,000
11,165,222
10,000,000
3,993,565
16,000,000
40,500,000
90		 $ 53,146
839,898
322,025
2,111
610,719
919
74,256
260,708
251,440
72,269
6,939
3,337,200
27,107		 1
6
19
-
9
3
2
8
7
2
6
13
-		 $ 53,146
839,898
322,025
2,111
610,719
919
74,256
260,708
251,440
72,269
6,939
3,337,200
27,107
AvanStrate Inc.
TPV Technology Ltd.
Chi Lin Optoelectronics Co., Ltd.
Epistar Corporation
Chimei Materials Technology Corp.
Trillion Science Inc.
China Electric Mfg. Corp.
Advanced Optoelectronic Technology, Inc.
Fitipower Integrated Technology Inc.
G-TECH Optoelectronics Corporation
OED Holding Ltd.
General Interface Solution (GIS) Holding
Limited
PilotTech Global Fund

Table 2, Page 1

Innolux Corporation and Subsidiaries Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more For the nine months ended September 30, 2016

Table 3

Expressed in thousands of NTD (Except as otherwise indicated)

Purchaser/seller Counterparty Relationshipwith the counterparty Transaction Transaction Differences in transaction terms
compared to third party
transactions		 Differences in transaction terms
compared to third party
transactions		 Notes/accounts receivable(payable) Notes/accounts receivable(payable) Footnote
Purchases
(sales)		 Amount Percentage of total
purchases(sales)		 Credit term Unitprice Credit term Balance Percentage
of total
notes/accounts
receivable
(payable)
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation		 Lakers Trading Ltd.
Hon Hai Precision Industry Co.,
Ltd.
Innolux Optoelectronics Japan
Co., Ltd.
Honfujin Precision Electronics
(Chongqing) Co., Ltd.
Innolux Technology USA Inc.
Innolux Hong Kong Ltd.
Hongfujin Precision Electronics
(Yantai) Co., Ltd.
Competition Team Technology
(India) Private Limited
Hongfujin Precision Electronics
(Zhengzhou) Co., Ltd.
Innolux Optoelectronics USA,
Inc.
eCMMS Precision Singapore
Pte. Ltd.
Hongfutai Precision Electronics
(Yantai) Co., Ltd.
Chi Lin Optoelectronics Co., Ltd.
Ningbo Innolux Display Ltd.		 An indirect wholly-owned
subsidiary
Same major stockholder
A subsidiary of the Company
An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd.
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd.
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd.
The company is a corporate director
of Chi Lin Optoelectronics
An indirect wholly-owned
subsidiary		 Sales
Sales
Sales
Sales
Sales
Sales
Sales
Sales
Sales
Sales
Sales
Sales
Sales
Sales		 $ 4,068,072
3,245,874
1,461,778
1,280,552
886,302
876,985
532,243
699,793
372,736
402,035
432,381
360,878
326,332
242,518		 2
2
1
1
-
-
-
-
-
-
-
-
-
-		 60 days
45~90 days
45 days
45 days
60 days
60 days
45~90 days
90 days
60 days
45 days
90 days
90 days
45 days
90 days		 Similar with
general sales
Similar with
general sales
Single sales
target, no basis
for comparison
Similar with
general sales
Similar with
general sales
Similar with
general sales
Similar with
general sales
Similar with
general sales
Similar with
general sales
Similar with
general sales
Similar with
general sales
Similar with
general sales
Similar with
general sales
Similar with
general sales		 No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference		 -
$
2,916,546
164,313
408,780
38,001
-
154,486
439,708
-
70,245
177,250
352,400
102,959
3,323		 -
7
-
1
-
-
-
1
-
-
-
1
-
-

Table 3, Page 1

Purchaser/seller Counterparty Relationshipwith the counterparty Transaction Transaction Differences in transaction terms
compared to third party
transactions		 Differences in transaction terms
compared to third party
transactions		 Notes/accounts receivable(payable) Notes/accounts receivable(payable) Footnote
Purchases
(sales)		 Amount Percentage of total
purchases(sales)		 Credit term Unitprice Credit term Balance Percentage
of total
notes/accounts
receivable
(payable)
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Foshan Innolux
Optoelectronics Ltd.
Ningbo Innolux
Optoelectronics Ltd.
Shanghai Innolux
Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
Ningbo Innolux Technology
Ltd.		 Honfujin Precision Electronics
(Wuhan) Co., Ltd.
Hon Hai Precision Industry Co.,
Ltd.
FI Medical Device
Manufacturing Co., Ltd.
Chi Lin Optoelectronics Co., Ltd.
GIO Optoelectronics Corp.
Lakers Trading Ltd.
Innolux Hong Kong Ltd.
Leadtek Global Group Limited
Foxconn Precision Electronics
(Yantai) Co., Ltd.
Ningbo Innolux Display Ltd.
Nanjing Innolux Optoelectronics
Ltd.
Ningbo Innolux Optoelectronics
Ltd.
Ningbo Innolux Display Ltd.		 An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd
Same major stockholder
The company's investments
accounted for under the equity
method
The company is a corporate director
of Chi Lin Optoelectronics
The company's investments
accounted for under the equity
method
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
A subsidiary of the Company
An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary		 Sales
Purchases
Purchases
Purchases
Purchases
Processing
expense
Processing
expense
Processing
expense
Sales
Sales
Sales
Sales
Sales		 $ 109,576
1,724,664
794,946
225,801
165,573
41,366,627
12,492,897
14,344,612
262,828
3,576,824
527,646
358,066
134,732		 -
1
-
-
-
21
6
7
1
10
4
2
33		 90 days
60~90 days after
acceptance
30 days after
acceptance
120 days after
acceptance
60 days after
cceptance
60~90 days
60~90 days
60~90 days
60 days
60 days
60 days
60 days
60 days		 Similar with
general
transactions
Single
purchases
target, no basis
for comparison
Single
purchases
target, no basis
for comparison
Single
purchases
target, no basis
for comparison
Single
purchases
target, no basis
for comparison
Cost plus
Cost plus
Cost plus
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions		 No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference		 35,633
$
909,509)
(
147,831)
(
131,438)
(
44,547)
(
27,197,196)
(
9,126,606)
(
23,882,481)
(
292,777
835,852
39,440
83,579
104,930		 -
1
-
-
-
30
10
27
1
3
1
2
100

Table 3, Page 2

Purchaser/seller Counterparty Relationshipwith the counterparty Transaction Transaction Differences in transaction terms
compared to third party
transactions		 Differences in transaction terms
compared to third party
transactions		 Notes/accounts receivable(payable) Notes/accounts receivable(payable) Footnote
Purchases
(sales)		 Amount Percentage of total
purchases(sales)		 Credit term Unitprice Credit term Balance Percentage
of total
notes/accounts
receivable
(payable)
Innocom Technology
(Shenzhen) Co., Ltd.
Innocom Technology
(Shenzhen) Co., Ltd.
Innolux Hong Kong Ltd.
Foshan Innolux
Optoelectronics Ltd.
Ningbo Innolux
Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
Shanghai Innolux
Optoelectronics Ltd.
Shanghai Innolux
Optoelectronics Ltd.
Nanjing Innolux
Optoelectronics Ltd.
Ningbo Innolux Technology
Ltd.
Innolux Technology Japan
Co., Ltd.
Ningbo Innolux Display Ltd.
Foshan Innolux
Optoelectronics Ltd.
Ningbo Innolux
Optoelectronics Ltd.		 Ningbo Innolux Display Ltd.
Nanjing Innolux Optoelectronics
Ltd.
Nanjng Innolux Technology Ltd.
Lakers Trading Ltd.
Leadtek Global Group Limited
Lakers Trading Ltd.
Innolux Hong Kong Ltd.
Lakers Trading Ltd.
Innolux Hong Kong Ltd.
Leadtek Global Group Limited
Innolux Hong Kong Ltd.
Hon Hai Precision Industry Co.,
Ltd.
Hon Hai Precision Industry Co.,
Ltd.
Ningbo Lin Moug Optronics Co.,
Ltd.		 An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
A subsidiary of the Company
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
An indirect wholly-owned
subsidiary
A subsidiary of the Company
An indirect wholly-owned
subsidiary
Same major stockholder
Same major stockholder
An indirect wholly-owned
subsidiary of Chi Lin
Optoelectronics Co., Ltd.		 Sales
Sales
Sales
Processing
revenue
Processing
revenue
Processing
revenue
Processing
revenue
Processing
revenue
Processing
revenue
Processing
revenue
Service
revenue
Purchases
Purchases
Purchases		 $ 384,690
105,405
373,276
20,921,360
13,205,861
12,837,853
1,859,691
7,455,911
9,774,616
271,623
241,895
678,947
571,590
523,517		 53
15
2
82
79
97
15
71
94
66
91
4
1
2		 60 days
60 days
60 days
60 days
60 days
60 days
60 days
60 days
60 days
60 days
60 days
90 days after
goods are
shipped
90 days after
goods are
shipped
120 days after
goods are
shipped		 Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions		 No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference
No material
difference		 320,081
$
117,416
324,391
18,732,058
19,365,309
3,813,135
1,777,216
614,275
7,076,392
-
53,187
274,573)
(
272,367)
(
280,844)
(		 25
9
3
98
92
98
65
20
99
-
94
5
1
2

Table 3, Page 3

Purchaser/seller Counterparty Relationshipwith the counterparty Transaction Transaction Differences in transaction terms
compared to third party
transactions		 Differences in transaction terms
compared to third party
transactions		 Notes/accounts receivable(payable) Notes/accounts receivable(payable) Footnote
Purchases
(sales)		 Amount Percentage of total
purchases(sales)		 Credit term Unitprice Credit term Balance Percentage
of total
notes/accounts
receivable
(payable)
Ningbo Innolux Display Ltd.
Ningbo Innolux
Optoelectronics Ltd.
Ningbo Innolux
Optoelectronics Ltd.		 Ningbo Lin Moug Optronics Co.,
Ltd.
Hon Hai Precision Industry Co.,
Ltd.
Honfujin Precision Electronics
(Shenzhen) Co., Ltd.		 An indirect wholly-owned
subsidiary of Chi Lin
Optoelectronics Co., Ltd.
Same major stockholder
An indirect wholly-owned
subsidiary of Hon Hai Precision
Industry Co., Ltd.		 Purchases
Purchases
Purchases		 $ 456,580
400,935
327,504		 3
1
1		 120 days after
goods are
shipped
60 days after
goods are
shipped
90 days after
goods are
shipped		 Similar with
general
transactions
Similar with
general
transactions
Similar with
general
transactions		 No material
difference
No material
difference
No material
difference		 266,784)
($
139,584)
(
158,837)
(		 5
1
1

Table 3, Page 4

Table 4

Innolux Corporation and Subsidiaries Receivables from related parties reaching $100 million or 20% of paid-in capital or more September 30, 2016

Expressed in thousands of NTD (Except as otherwise indicated)

Creditor Counterparty Relationship
with the counterparty		 Balance as
at September 30,2016		 Turnover rate Overdue receivables Overdue receivables Amount collected
subsequent to the
balance sheet date		 Allowance for
doubtful accounts
Amount Action taken
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Technology Ltd.
Ningbo Innolux Display Ltd.
Shanghai Innolux Optoelectronics Ltd.
Shanghai Innolux Optoelectronics Ltd.
Foshan Innolux Optoelectronics Ltd.
Foshan Innolux Optoelectronics Ltd.
Nanjing Innolux Optoelectronics Ltd.
Innocom Technology (Shenzhen) Co.,
Ltd.
Innocom Technology (Shenzhen) Co.,
Ltd.
Innocom Technology (Shenzhen) Co.,
Ltd.
Innolux Hong Kong Ltd.		 Hon Hai Precision Industry Co., Ltd.
Honfujin Precision Electronics
(Chongqing) Co., Ltd.
Competition Team Technology
(India) Private Limited
Honfutai Precision Electronics
(Yantai) Co., Ltd.
eCMMS Precision Singapore Pte.
Ltd.
Innolux Optoelectronics Japan Co., Ltd.
Hongfujin Precision Electronics (Yantai)
Co., Ltd.
Chi Lin Optoelectronics Co., Ltd
Leadtek Global Group Limited
Ningbo Innolux Technology Ltd.
Ningbo Innolux Display Ltd.
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
Lakers Trading Ltd.
Innolux Hong Kong Ltd.
Lakers Trading Ltd.
Foxconn Precision Electronics
(Yantai) Co., Ltd.
Innolux Hong Kong Ltd.
Lakers Trading Ltd.
Nanjing Innolux Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
Nanjing Innolux Technology Ltd.		 Same major stockholder
An indirect wholly-owned subsidiary of
Hon Hai Precision Industry Co., Ltd.
An indirect wholly-owned subsidiary of
Hon Hai Precision Industry Co., Ltd.
An indirect wholly-owned subsidiary of
Hon Hai Precision Industry Co., Ltd.
An indirect wholly-owned subsidiary of
Hon Hai Precision Industry Co., Ltd.
A subsidiary of the Company
An indirect wholly-owned subsidiary of
Hon Hai Precision Industry Co., Ltd.
An indirect wholly-owned subsidiary of
Hon Hai Precision Industry Co., Ltd.
A subsidiary of the Company
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary of
Hon Hai Precision Industry Co., Ltd.
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary
An indirect wholly-owned subsidiary		 $ 2,916,546
408,780
439,708
352,400
177,250
164,313
154,486
102,959
19,365,309
838,858
835,852
104,930
3,813,135
614,275
1,777,216
18,732,058
292,777
7,076,392
753,737
117,416
320,081
324,391		 1.64
3.15
2.40
1.96
4.88
9.64
5.05
4.55
1.04
-
9.56
2.95
7.07
7.19
1.99
2.09
0.10
1.75
0.05
0.72
1.60
1.39		 $ 88,100
118,646
107,095
425
-
-
-
114
11,307,358
835,850
2,666
-
-
614,267
-
7,101,406
-
4,843,938
626,493
-
-
4,199		 Subsequent collection
Subsequent collection
Subsequent collection
Subsequent collection
-
-
-
Subsequent collection
Subsequent collection
Subsequent collection
Subsequent collection
-
-
Subsequent collection
-
Subsequent collection
-
Subsequent collection
Subsequent collection
-
-
Subsequent collection		 $ 193,399
127,126
110,783
-
-
-
3,960
53,930
3,622,331
-
397,851
-
1,714,140
927,452
-
5,459,317
-
499,386
-
-
185
103,096		 -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

Table 4, Page 1

Significant inter-company transactions during the reporting period For the nine months ended September 30, 2016

Table 5

Innolux Corporation and Subsidiaries

Expressed in thousands of NTD (Except as otherwise indicated)

Number Companyname Counterparty Relationship
(Note A)		 Transaction(Note C) Transaction(Note C)
General ledger account Amount Transaction terms
(Note B)		 Percentage of
consolidated total
operating revenues
or total assets
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
2
2
3
3
4
4
4
4
4		 Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Shanghai Innolux Optoelectronics Ltd.
Shanghai Innolux Optoelectronics Ltd.
Shanghai Innolux Optoelectronics Ltd.
Shanghai Innolux Optoelectronics Ltd.
Shanghai Innolux Optoelectronics Ltd.
Foshan Innolux Optoelectronics Ltd.
Foshan Innolux Optoelectronics Ltd.
Nanjing Innolux Optoelectronics Ltd.
Nanjing Innolux Optoelectronics Ltd.
Innocom Technology (Shenzhen) Co., Ltd.
Innocom Technology (Shenzhen) Co., Ltd.
Innocom Technology (Shenzhen) Co., Ltd.
Innocom Technology (Shenzhen) Co., Ltd.
Innocom Technology (Shenzhen) Co., Ltd.		 Innolux Hong Kong Ltd.
Innolux Hong Kong Ltd.
Innolux Hong Kong Ltd.
Innolux Optoelectronics Japan Co., Ltd.
Innolux Optoelectronics Japan Co., Ltd.
Innolux Optoelectronics USA, Inc.
Innolux Technology USA Inc.
Lakers Trading Ltd.
Lakers Trading Ltd.
Lakers Trading Ltd.
Leadtek Global Group Limited
Leadtek Global Group Limited
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
Lakers Trading Ltd.
Nanjing Innolux Optoelectronics Ltd.
Innolux Hong Kong Ltd.
Innolux Hong Kong Ltd.
Lakers Trading Ltd.
Lakers Trading Ltd.
Innolux Hong Kong Ltd.
Innolux Hong Kong Ltd.
Lakers Trading Ltd.
Ningbo Innolux Display Ltd.
Ningbo Innolux Display Ltd.
Nanjing Innolux Optoelectronics Ltd.
Nanjing Innolux Optoelectronics Ltd.		 1
1
1
1
1
1
1
1
1
1
1
1
1
3
3
3
3
3
3
3
3
3
3
3
3
3
3		 Sales
Processing expense
Accrued expenses
Sales
Accounts receivable
Sales
Sales
Sales
Processing expense
Accrued expenses
Processing expense
Accrued expenses
Sales
Processing revenue
Accounts receivable
Sales
Processing revenue
Accounts receivable
Processing revenue
Accounts receivable
Processing revenue
Accounts receivable
Accounts receivable
Sales
Accounts receivable
Sales
Accounts receivable		 876,985
$
12,492,897
9,126,606)
(
1,461,778
164,313
402,035
886,302
4,068,072
41,366,627
27,197,196)
(
14,344,612
23,882,481)
(
242,518
7,455,911
614,275
527,646
1,859,691
1,777,216
20,921,360
18,732,058
9,774,616
7,076,392
753,737
384,690
320,081
105,405
117,416		 -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-		 -
6
3
1
-
-
-
2
21
8
7
7
-
4
-
-
1
1
11
5
5
2
-
-
-
-
-

Table 5, Page 1

Transaction (Note C)

Number Companyname Counterparty Relationship
(Note A)		 General ledger account Amount Transaction terms
(Note B)		 Percentage of
consolidated total
operating revenues
or total assets
5
5
5
6
6
6
6
6
7
7
7
8
9
9		 Ningbo Innolux Technology Ltd.
Ningbo Innolux Technology Ltd.
Ningbo Innolux Technology Ltd.
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
Ningbo Innolux Display Ltd.
Ningbo Innolux Display Ltd.
Innolux Technology Japan Co., Ltd.
Innolux Hong Kong Ltd.
Innolux Hong Kong Ltd.		 Leadtek Global Group Limited
Ningbo Innolux Display Ltd.
Ningbo Innolux Display Ltd.
Leadtek Global Group Limited
Leadtek Global Group Limited
Ningbo Innolux Technology Ltd.
Ningbo Innolux Display Ltd.
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
Lakers Trading Ltd.
Ningbo Innolux Optoelectronics Ltd.
Innolux Hong Kong Ltd.
Nanjing Innolux Technology Ltd.
Nanjing Innolux Technology Ltd.		 3
3
3
3
3
3
3
3
3
3
3
3
3
3		 Processing revenue
Sales
Accounts receivable
Processing revenue
Accounts receivable
Accounts receivable
Sales
Accounts receivable
Processing revenue
Accounts receivable
Sales
Service revenue
Sales
Accounts receivable		 271,623
$
134,732
104,930
13,205,861
19,365,309
838,858
3,576,824
835,852
12,837,853
3,813,135
358,066
241,895
373,276
324,391		 -
-
-
-
-
-
-
-
-
-
-
-
-
-		 -
-
-
7
5
-
2
-
6
1
-
-
-
-

Note A: 1. The parent company to the subsidiary.

  1. The subsidiary to the subsidiary.

Note B: Except for no comparable transactions from related parties, sales prices were similar to non-related parties transactions and the collection period was 30~120 days; the purchases from related parties were at market prices and payment term was 30~120 days upon receipt of goods.

Note C: Amount disclosure standard: purchases, sales and receivables from related parties in excess of $100 million or 20% of capital.

Table 5, Page 2

Innolux Corporation and Subsidiaries

Information on investees

Table 6

Expressed in thousands of NTD (Except as otherwise indicated)

For the nine months ended September 30, 2016

Investor Investee Location Main business
activities		 Initial investment amount Initial investment amount Shares held a s atSeptember30,2016 s atSeptember30,2016 Net profit (loss)
of the investee
for the nine
months ended
September 30,
2016		 Investment income
(loss) recognised
by the Company
for the nine months
ended September
30,2016		 Footnote
Balance as at
September
30,2016		 Balance as at
December
31,2015		 Number of shares Ownership
(%)		 Bookvalue
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation
Innolux Corporation		 Bright Information Holding Ltd.
Golden Achiever International Ltd.
Innolux Holding Ltd.
Keyway Investment Management
Limited
Landmark International Ltd.
Toppoly Optoelectronics (B.V.I.) Ltd.
Innolux Hong Kong Holding Ltd.
Leadtek Global Group Limited
Yuan Chi Investment Co., Ltd.
InnoJoy Investment Corporation
Innolux Optoelectronics Europe B.V.
Innolux Optoelectronics Japan Co.,
Ltd.
Ampower Holding Ltd.
Jetronics International Corp.
FI Medical Device Manufacturing Co.,
Ltd.
iZ3D, Inc.
Chi Mei Lighting Technology
Corporation		 Hong Kong
BVI
Samoa
Samoa
Samoa
BVI
Hong Kong
BVI
Taiwan
Taiwan
Netherlands
Japan
Cayman
Samoa
Taiwan
USA
Taiwan		 Investment holdings
Investment holdings
Investment holdings
Investment holdings
Investment holdings
Investment holdings
Investment holdings
Order swap company
Investment company
Investment company
Importing, exporting,
buying, selling and
logistics services of
electronic equipment
and TFT-LCD monitors
Researching,
manufacturing and
selling of the film
transistor liquid crystal
display
Investment holdings
Investment holdings
Production and selling
of the absorption for
medical element
Research and
development and sale
of 3D flat monitor
Manufacturing of
electronic equipment
and lighting equipment		 119,724
$
119,106
7,858,300
197,554
33,438,542
3,674,115
2,107,291
-
1,217,235
1,674,054
121,941
1,335,486
1,717,714
-
73,500
-
819,312		 119,724
$
119,106
7,858,300
197,554
33,438,542
3,596,307
2,107,291
-
1,217,235
1,674,054
121,941
1,335,486
1,717,714
86,149
73,500
-
819,312		 4,910,000
40,250
246,768,185
5,656,410
709,450,000
146,847,000
1,158,844,000
50,000,000
-
167,405,392
180
80
14,062,500
-
7,350,000
4,333
78,195,856		 100
100
100
100
100
100
100
100
100
100
100
100
50
-
49
35
33		 100,612
$
61,910
18,279,462
256,274
45,372,582
6,696,507
3,301,875
83,571
1,082,062
1,196,139
127,901
1,643,471
851,080
-
331,174
-
-		 6,672)
($
24
211,226
43,608
2,811,338
339,076
213,789
316,453
60,907)
(
65,932)
(
1,838)
(
22,472)
(
19,994
8,152
405,409
-
-		 6,672)
($
641
231,800
43,608
2,868,279
338,778
210,072
316,453
60,907)
(
65,932)
(
1,838)
(
22,472)
(
9,998
66,624
198,650
-
-

Table 6, Page 1

Investor Investee Location Main business
activities		 Initial investment amount Initial investment amount Shares held a s atSeptember30,2016 s atSeptember30,2016 Net profit (loss)
of the investee
for the nine
months ended
September 30,
2016		 Investment income
(loss) recognised
by the Company
for the nine months
ended September
30,2016		 Footnote
Balance as at
September
30,2016		 Balance as at
December
31,2015		 Number of shares Ownership
(%)		 Bookvalue
Innolux Corporation
Innolux Holding Ltd.
Innolux Holding Ltd.
Innolux Holding Ltd.
Innolux Holding Ltd.
Toppoly Optoelectronics (B.V.I.)
Ltd.
Innolux Hong Kong Holding Ltd.
Innolux Hong Kong Holding Ltd.
Innolux Hong Kong Holding Ltd.
Innolux Hong Kong Holding Ltd.
Innolux Hong Kong Holding Ltd.
Innolux Optoelectronics Europe
B.V.
Innolux Optoelectronics Japan
Co., Ltd.
Rockets Holding Ltd.
Rockets Holding Ltd.
Rockets Holding Ltd.
Rockets Holding Ltd.
Rockets Holding Ltd.
Suns Holding Ltd.
Innolux Technology Europe B.V.		 GIO Optoelectronics Corp.
Rockets Holding Ltd.
Suns Holding Ltd.
Lakers Trading Ltd.
Innolux Corporation
Toppoly Optoelectronics (Cayman)
Ltd.
Innolux Optoelectronics Hong Kong
Holding Ltd.
Innolux Hong Kong Ltd.
Innolux Technology Europe B.V.
Innolux Technology Japan Co., Ltd.
Innolux Technology USA Inc.
Innolux Optoelectronics Germany
GmbH
Innolux Optoelectronics USA, Inc.
Best China Investments Ltd.
Mega Chance Investments Ltd.
Magic Sun Ltd.
Stanford Developments Ltd.
Nets Trading Ltd.
Warriors Technology Investments
Ltd.
Innolux Technology Germany GmbH		 Taiwan
Samoa
Samoa
Samoa
USA
Cayman
Hong Kong
Hong Kong
Netherlands
Japan
USA
Germany
USA
Samoa
Samoa
Samoa
Samoa
Samoa
Samoa
Germany		 Manufacturing and
selling of components
of TFT-LCD
Investment holdings
Investment holdings
Order swap company
Distributor company
Investment holdings
Investment holdings
Order swap company
Holding company and
R&D testing company
R&D testing company
Distributor company
Importing, exporting,
buying, selling and
logistics services of
electronic equipment
and TFT-LCD monitors
Selling of electronic
equipment and
computer monitors
Investment holdings
Investment holdings
Investment holdings
Investment holdings
Investment company
Investment company
Testing and
maintenance company		 800,892
$
7,296,530
555,422
-
6,348
3,650,192
-
-
3,073,072
1,815,603
263,685
10,324
2,400
314,740
573,940
1,146,370
5,391,125
27,477
555,422
33,735		 800,892
$
7,296,530
555,422
-
6,348
3,572,384
-
-
3,073,072
1,815,603
263,685
10,324
2,400
314,740
573,940
1,146,370
5,391,125
27,477
555,422
33,735		 14,812,705
226,504,550
18,177,052
1
2,000
146,817,000
162,897,802
35,000,000
375,810
201
1,000
250
1,000
10,000,001
18,000,000
38,000,001
164,000,000
900,001
18,177,052
100,000		 24
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100		 100,955
$
14,134,055
3,996,312
238,919
89,833)
(
6,696,440
1,123,378
1,731,572)
(
2,251,639
1,944,573
356,651
12,135
270,947
254,464
419,059
1,044,469
12,386,611
29,324
3,996,310
58,714		 26,772
$
91,141
121,235
-
1,150)
(
339,076
149,298
32,164
22,187
547)
(
9,702
4,648)
(
5,829
239
393
980
89,529
-
121,235
986		 6,366
$
91,141
121,235
-
1,150)
(
339,076
149,298
32,164
22,187
547)
(
9,702
4,648)
(
5,829
239
393
980
89,529
-
121,235
986

Table 6, Page 2

Investor Investee Location Main business
activities		 Initial investment amount Initial investment amount Shares held a s atSeptember30,2016 s atSeptember30,2016 Net profit (loss)
of the investee
for the nine
months ended
September 30,
2016		 Investment income
(loss) recognised
by the Company
for the nine months
ended September
30,2016		 Footnote
Balance as at
September
30,2016		 Balance as at
December
31,2015		 Number of shares Ownership
(%)		 Bookvalue
Best China Investments Ltd.
Mega Chance Investments Ltd.
Magic Sun Ltd.
Yuan Chi Investment Co., Ltd.
Yuan Chi Investment Co., Ltd.
Yuan Chi Investment Co., Ltd.		 Asiaward Investment Ltd.
Main Dynasty Investment Ltd.
Sun Dynasty Development Ltd.
Chi Mei Lighting Technology
Corporation
GIO Optoelectronics Corp.
TOA Optronics Corporation		 Hong Kong
Hong Kong
Hong Kong
Taiwan
Taiwan
Taiwan		 Investment holdings
Investment holdings
Investment holdings
Trading business,
manufacturing of
electronic equipment
and lighting equipment
Manufacturing and
selling of components
of TFT-LCD
Selling electronic
materials, trading
business,
manufacturing of
electronic equipments
and lighting
equipments		 314,740
$
573,940
1,146,370
263,812
6,881
423,606		 314,740
$
573,940
1,146,370
263,812
6,881
423,606		 77,830,001
139,623,801
295,969,001
19,673,402
109,021
58,007,000		 100
100
100
8
-
40		 254,464
$
419,058
1,044,469
-
764
244,208		 239
$
393
980
-
26,772
165,406)
(		 239
$
393
980
-
48
66,162)
(

Table 6, Page 3

Innolux Corporation and Subsidiaries Information on investments in Mainland China For the nine months ended September 30, 2016

Expressed in thousands of NTD (Except as otherwise indicated)

Table 7

Investee in MainlandChina Main business activities Paid-in capital
(Note A)		 Investment
method
(NoteC)		 Accumulated
amount of
remittance from
Taiwan to
Mainland China as
ofJanuary1,2016		 Amount remitted from Taiwan
to Mainland China / Amount
remitted back to Taiwan for the
nine months ended
September30,2016		 Amount remitted from Taiwan
to Mainland China / Amount
remitted back to Taiwan for the
nine months ended
September30,2016		 Accumulated
amount
of remittance from
Taiwan to
Mainland China as
of September 30,
2016		 Net income of
investee for the
nine months
ended September
30,2016		 Ownership
held by
the Company
(direct or
indirect)		 Investment income
(loss) recognised
by the Company
for the nine
months ended
September 30,
2016		 Book value of
investments in
Mainland China
as of September
30,2016		 Accumulated
amount of
investment
income remitted
back to Taiwan
as of September
30,2016		 Footnote
Remitted to
MainlandChina		 Remitted back
to Taiwan
Innocom Technology (Shenzhen)
Co., Ltd.
OED Company
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Technology Ltd.
Foshan Innolux Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
Nanjing Innolux Technology Ltd.
Kunpal Optoelectronics Ltd.
VAP Optoelectronics (Nanjing)
Corp.
Nanjing Innolux Optoelectronics
Ltd.
Ningbo Innolux Logistics Ltd.
Shanghai Innolux Optoelectronics
Ltd.
Foshan Innolux Logistics Ltd.
Amlink (Shanghai) Ltd.
Interface Optoelectronics (Shenzhen)
Co., Ltd.
Ningbo Innolux Electronics Ltd.		 Manufacturing and selling of LCD
backend module and related components
Manufacturing and selling of electronic
paper
Manufacturing and selling of LCD
backend module and related components
Manufacturing and selling of LCD
backend module and related components
Manufacturing and selling of LCD
backend module and related components
Manufacturing and selling of LCD
backend module and related components
Purchases and sales of monitor-related
components company
Glass thinning processing service
Manufacturing and selling of LCD
backend module and related components
Manufacturing and selling of LCD
backend module and related components
Warehousing services
Manufacturing and selling of LCD
backend module and related components
Warehousing services
Manufacturing and selling of power
supply, modem, ADSL, and other IT
equipments
Development of new type of flat panel
display, monitor and peripherals,
production and management, and offer of
after-sales service
Manufacturing and selling of LCD
backend module and related components		 $ 5,143,040
302,006
9,721,600
4,076,800
12,010,880
940,800
65,856
125,440
316,736
4,453,120
125,440
658,560
47,040
250,880
3,016,832
140,886		 2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
3		 $ 3,979,952
62,720
230,968
4,076,800
12,010,880
940,800
65,856
118,599
119,168
4,453,120
125,440
-
47,040
313,600
423,360
-		 $ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-		 $ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-		 $ 3,979,952
62,720
230,968
4,076,800
12,010,880
940,800
65,856
118,599
119,168
4,453,120
125,440
-
47,040
313,600
423,360
-		 $ 89,529
( 97,139)
1,188,828
( 1,863)
1,282,180
340,292
7,160
( 6,851)
24
322,438
36,476
149,298
7,132
23,327
15,751
70,005		 100
4
100
100
100
100
100
100
100
100
100
100
100
50
13
100		 $ 89,529
-
1,188,828
( 1,863)
1,282,180
340,292
7,160
( 6,851)
24
322,438
36,476
149,298
7,132
11,664
-
70,005		 $ 12,386,611
12,601
21,860,731
3,197,187
19,657,825
657,924
570,097
65,834
61,517
6,060,487
181,266
1,123,378
70,234
208,568
3,179,250
207,573		 $ 1,163,088
-
5,413,832
-
-
-
-
-
-
-
-
-
-
-
-
-		 2.1
2.1
2.2
2.2
2.2
2.2
2.3
2.3
2.4
2.3
2.6
2.5
2.6
2.7
2.1
3.1

Table 7, Page 1

Ceiling on investments in Mainland China:

Companyname Accumulated amount of remittance
from Taiwan to Mainland China
as ofSeptember30,2016		 Investment amount approved by the
Investment Commission of the Ministry
of Economic Affairs(MOEA)		 Ceiling on investments in Mainland
China imposed by the Investment
Commission of MOEA
Innolux Corporation 28,431,965
$		 38,667,719
$		 129,206,966
$

Note A: The relevant figures were listed in NT$. Where foreign currencies were involved, the figures were converted to NT$ using exchange rate.

Note B: Profit or loss recognised for the nine-month period ended September 30, 2016 was reviewed by independent accountants.

Note C: The investment methods are as follows:

  1. Directly investing in Mainland China.

  2. Through investing in companies in the third area, which then invested in the investee in Mainland China.

  3. 2.1.Through investing in Innolux Holding Ltd. in the third area, which then invested in the investee in Mainland China.

  4. 2.2.Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China.

  5. 2.3.Through investing in Toppoly Optoelectronics (B.V.I) Ltd. in the third area, which then invested in the investee in Mainland China.

  6. 2.4.Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China.

  7. 2.5.Through investing in Innolux Hong Kong Holding Ltd. in the third area, which then invested in the investee in Mainland China.

  8. 2.6.Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China.

  9. 2.7.Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China.

  10. Others.

  11. 3.1.The company invests in the company via investee companies in Mainland China is Ningbo Innolux Display Ltd. Except for the investment via the holding companies in Mainland China, other investments shall not be approved by Investment Commission of the Ministry of Economic Affairs.

Table 7, Page 2

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